“Too big to fail — remember that term!” That was the prophetic warning issued from the Senate floor by Sen. Byron Dorgan (D-ND) on November 4, 1999.
Who could forget those words today?
Dorgan was arguing against the Gramm-Leach-Bliley Act, also known as The Financial Services Modernization Act of 1999. The new law would repeal key elements of the Glass-Steagall Act of 1933, which separated regular, everyday banks from investment banks in order to protect peoples’ bank accounts from risky investments. Passed during the Great Depression, when bank runs were common and thousands of banks went out of business, Glass-Steagall also gave greater control to the Federal Reserve System and created the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits with “the full faith and credit of the United States Government.”
“I’ll bet one day somebody’s going to look back at this and say, ‘how on earth could we have thought it made sense to allow the banking industry to concentrate through merger and acquisition to become bigger and bigger and bigger,’” Dorgan said. “How did we think that was gonna help this country?”
Watch Dorgan’s complete 1999 speech — one of the most prescient in American political history — below.
By 1999, the Depression-era roots of Glass-Steagall seemed like ancient history, and some felt the provision separating commercial and investment banks was getting in the way of business. Deregulation was the buzzword of the decade, and Dorgan was a lonely figure arguing against it — the Gramm-Leach-Bliley bill was passed by the Senate 90-8, and by the House 362-57.
The new legislation was signed into law by President Bill Clinton on November 12, 1999, paving the way for the creation of banking behemoths like Citigroup, Bank of America and J. P. Morgan Chase. Citigroup — born from the merger of Citicorp, a commercial bank, and Travelers Group, an insurance company that had recently acquired Salomon Smith Barney, one of the largest investment banks — was technically formed before Glass-Steagall was repealed.
“I think we will in ten years time look back and say we should not have done that,” Dorgan said.
Fast forward ten years, and those banks that had grown “too big to fail” nearly brought down the global economy. The repeal of Glass-Steagall was widely cited as a cause of the financial collapse of 2008.
In the wake of the crisis, President Obama put forth a proposal for a “sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.” But for all the provisions in its 2,300 pages, the bill that he signed in July 2010 — known as the Dodd–Frank Wall Street Reform and Consumer Protection Act — still doesn’t separate commercial and investment banks.
Now, Dorgan is sounding another warning.
“I tried to pass some legislation in Dodd-Frank that says if you are too big to fail you’re too damn big and you should be broken up,” says Dorgan. “Dodd-Frank passed with my vote because it does some good things and it moves in the right direction. But it is timid. If you were going to address the real causes here, you would decide that too big to fail cannot be tolerated.” We’ll see if his words turn out to be as prescient this time around.