Return to Glass-Steagall

If ever it could be said Washington is the cradle of a bipartisan, self-perpetuating cycle in which the rich are coddled, the financial crisis is final proof.

In 1999, lawmakers undid the Glass-Steagall Act, a Depression-era law that separated investment from commercial banks. The repeal of Glass-Steagall was one of the predicates of the 2008 economic crisis, which prompted Congress to pass the Troubled Assets Relief Program – also known as the bank bailout – and the Dodd-Frank law, ostensibly to re-regulate the financial services industry.

Why do you care? Suddenly, this is an issue in the U.S. Senate race between incumbent Republican Dean Heller and his Democratic challenger, Rep. Shelley Berkley.

Heller wasn’t in Congress in 1999, but Berkley was, and she voted to repeal Glass-Steagall, as did former Rep. Jim Gibbons and Senate Majority Leader Harry Reid. (Alone among the Nevada delegation, Sen. Richard Bryan voted no.)

But Heller was around in 2008, when then-President George W. Bush presented the TARP program to Congress. Berkley voted yes, but Heller voted no. (That vote was tough: Economists were warning of a global financial meltdown if the U.S. financial system wasn’t rescued. We’ll never know what really would have happened if Heller’s side had won.)

But now, Heller’s campaign is touting these facts to draw a contrast between himself and Berkley. On Thursday, he said the issue was one of the most important that would be discussed during a Nevada Broadcasters Association-sponsored debate at VegasPBS.

First, Heller says, Berkley voted to undermine a key regulation governing financial institutions, creating what Heller called “a very risky situation.” Then, when bankers and Wall Street investors took those risks and lost, Berkley voted to help them out.

Heller – who touts his philosophy as one of smaller government, lower taxes and reasonable regulation – says he believes Glass-Steagall should be reinstituted. “I want to move to going back to Glass-Steagall,” he told the Review-Journal editorial board last week.

Berkley says she regrets her 1999 vote.

“Look, I did vote for the Glass-Steagall [repeal] bill and it was a mistake,” she said during the televised debate. “Let’s not look back.”

But asked if she’d vote to re-institute the act, Berkley demurred.

“I support the principles of Glass-Steagal, and its repeal was a mistake,” Berkley said in a statement. “However, we need to realize that the financial industry is more complex now than it was in the 1930s, and we need a regulatory policy that supports that. I support efforts to rein in bad behavior by big banks and have been a strong proponent for Wall Street Reform because I believe that we must hold banks and Wall Street corporations accountable. Unfortunately, my opponent doesn’t agree and voted against Wall Street Reform.”

By that, Berkley means the Dodd-Frank law.

Heller and many of his fellow Republicans scoff at Dodd-Frank’s ability to effectively regulate the industry, and he’s not alone. Despite reforms, there are still banks “too big to fail” that could force another financial crisis, and another vote on a bailout, in the future.

Heller claims Berkley’s fealty to the financial services sector has brought her rewards, in the form of campaign contributions. But according to the Center for Responsive Politics’s OpenSecrets.com website, Berkley’s contributions from companies in the finance, insurance and real estate category total $708,740, while Heller’s total $912,914. (Heller maintains Berkley has raised more from New York City than from Reno, though there are far more donors and dollars in the Big Apple.)

How much this issue – fraught with complicated regulatory details – will influence voters is uncertain. But if bitter political enemies can support at least the concept behind Glass-Steagall, maybe there’s hope for its resurrection?

Steve Sebelius is a Review-Journal political columnist and author of the blog SlashPolitics.com. Follow him on Twitter (@SteveSebelius) or reach him at (702) 387-5276 or ssebelius@reviewjournal.com.