# Glass-Steagall Repeal (November 12, 1999) On **November 12, 1999**, [[President Clinton]] signed the **Gramm-Leach-Bliley Act (GLBA)**, repealing the core provisions of the **Glass-Steagall Act of 1933** — the [[New Deal]]-era law that had separated commercial banking (deposits and loans) from investment banking (securities and speculation) in response to the [[Black Tuesday]] and the [[Great Depression]]. The repeal allowed banks, insurance companies, and securities firms to merge into massive financial conglomerates — creating the "too big to fail" institutions whose collapse nine years later triggered the **2008 financial crisis**, the worst economic catastrophe since the Depression itself. Glass-Steagall's repeal matters for the KB as the **completion of the Mellon cycle**: the New Deal regulatory framework built specifically to prevent a repeat of 1929 was dismantled by the same deregulatory ideology that had produced the crash in the first place. It also demonstrates, like [[Welfare Reform Act]], how conservative economic ideology became so dominant by the 1990s that a Democratic president enacted it — the [[Powell Memo]]'s institutional strategy bearing fruit across party lines. ## What Glass-Steagall Had Done The **Banking Act of 1933** (Glass-Steagall) was passed in direct response to the 1929 crash and the banking failures of the Depression: - **Separated commercial and investment banking:** Banks that took deposits couldn't trade securities; firms that traded securities couldn't take deposits - **Created the FDIC:** Federal deposit insurance (initially $2,500 per depositor) to prevent bank runs - **Rationale:** The Pecora Commission (1932–34) had revealed that banks had used depositors' money to speculate in securities, creating the conflicts of interest that contributed to the crash For 66 years, Glass-Steagall prevented the concentration of financial risk that had caused the 1929 catastrophe. Its repeal removed that firewall. ## The Repeal ### The Long Campaign Glass-Steagall didn't fall in a single act. Its erosion was gradual: - **1980s:** Banks lobbied for and received regulatory exemptions allowing limited securities activities - **1987:** The Fed reinterpreted Glass-Steagall to allow bank affiliates to earn up to 5% (later 10%, then 25%) of revenue from securities - **1998:** Citicorp merged with Travelers Group (an insurance and securities firm) to create Citigroup — a merger that **technically violated Glass-Steagall** but was approved by regulators with the understanding that the law would be repealed - **1999:** Gramm-Leach-Bliley formalized what had already been happening, repealing the separation ### The Act The **Gramm-Leach-Bliley Act** (named for Senator Phil Gramm, R-TX; Representative Jim Leach, R-IA; and Representative Thomas Bliley, R-VA): - Repealed Sections 20 and 32 of Glass-Steagall (the firewall between commercial and investment banking) - Allowed the creation of **financial holding companies** combining banking, insurance, and securities - Passed the Senate 90-8 and the House 362-57 — overwhelmingly bipartisan - Clinton signed it, calling it a step toward "modernization" ### The Intellectual Framework The repeal was justified by arguments developed over decades in the think tank ecosystem: - **Heritage Foundation and Cato Institute:** Published extensive research arguing Glass-Steagall was outdated, that modern financial markets were self-regulating, and that regulation reduced competitiveness - **Alan Greenspan:** The Fed chairman (and [[Ayn Rand]] disciple) consistently argued against financial regulation, asserting that markets would self-correct - **"Financial modernization" narrative:** Framed regulation as a relic of the Depression era, unsuited to sophisticated modern markets ## The 2008 Consequence The financial crisis of 2008 was not caused solely by Glass-Steagall's repeal, but the repeal created the conditions: - **"Too big to fail" institutions:** The merged financial conglomerates (Citigroup, JPMorgan Chase, Bank of America) became so large that their failure threatened the entire economy - **Risk concentration:** Without the firewall, banks used depositors' funds to make speculative bets on mortgage-backed securities - **AIG:** The insurance giant was deeply entangled with investment banking through credit default swaps — exactly the cross-sector risk Glass-Steagall had prevented - **Bailout:** Taxpayers provided $700 billion (TARP) plus trillions in Fed lending to rescue institutions whose risky behavior the repeal had enabled ## The Mellon Cycle Completes Glass-Steagall's repeal closes the circle that the [[Black Tuesday]] opened: | Stage | Event | Year | |-------|-------|------| | Crash | Speculative bubble bursts (Mellon-era deregulation) | 1929 | | Regulation | Glass-Steagall separates banking from speculation | 1933 | | Stability | 66 years without systemic banking crisis | 1933–1999 | | Deregulation | Glass-Steagall repealed (Gramm-Leach-Bliley) | 1999 | | Crash | Speculative bubble bursts (subprime/derivatives) | 2008 | | Regulation | Dodd-Frank (partial re-regulation) | 2010 | | Deregulation | Dodd-Frank weakened under Trump | 2018 | | Next crash | (TBD) | (TBD) | This is the [[Gilded Age Plutocracy]] cycle operating at full speed: concentrate wealth → deregulate → speculate → crash → regulate → repeat. ## The Bipartisan Capture The most significant feature of the repeal was its **bipartisan support**: 90-8 in the Senate, signed by a Democratic president. This demonstrates that by 1999, the conservative economic consensus had become the national economic consensus. The intellectual infrastructure the Powell Memo prescribed had succeeded in shifting the entire political spectrum rightward on financial regulation — to the point where Democrats were implementing Republican economic policy. ## See Also - [[Black Tuesday]] — The crash that produced Glass-Steagall in the first place - [[Andrew Mellon]] — Whose deregulatory philosophy Glass-Steagall was designed to counteract - [[Powell Memo]] — The strategy that produced the think tanks justifying deregulation - [[Reagan Tax Cuts]] — The supply-side revolution that preceded financial deregulation - [[Gilded Age Plutocracy]] — The boom-bust cycle the repeal reactivated - [[Heritage Foundation]] — Produced research justifying the repeal - [[Cato Institute]] — Provided libertarian intellectual framework for deregulation