Warren takes aim at 'too big to fail': Reinstating Glass-Steagall a 'top three' priority

Massachusetts Senate candidate Elizabeth Warren said Sunday on a call with volunteers that restoring Glass-Steagall, the depression-era finance rule that prevented banks from becoming "too big to fail," would be among the top three Wall Street reforms on her agenda if voters elect her to the Senate.

Warren, a Harvard professor who helped create the Consumer Financial Protection Bureau (CFPB) after the global financial crash of 2008, mentioned the depression-era rule in a response to a volunteer who asked, "What can we do to hold Wall Street accountable and keep [a collapse] from happening again?"

"We fought [the fight for Dodd-Frank] out in the open, to try and get financial reforms passed," she said. "We finally got the consumer agency in place and got some reforms, and then after Dodd-Frank had passed they went back to the regulatory commissions. They were supposed to write regulations... I thought the fight was over. I thought that the good guys had won. But it turned out the lobbyists, the big financial institutions just decided to move the fight into the shadows."

Warren said that what's happened since is a case study in how Congress seems to function all too often: "They have been lobbying the regulators to try to weaken the rules, to put loopholes in them, to try to delay them and try to get rid of them outright," she lamented.

"We need a Senate and a House of Representatives that is determined to hold Wall Street accountable, not simply to achieve everything they want us to do, but to truly hold Wall Street accountable," Warren insisted. "I think the second part of that is for the regulations to come out that are still underway for the big financial institutions... If they're not strong enough, then I think we need to take another look at Glass-Steagall, separating the commercial banking activities from the investment activities."

Glass-Steagall was instituted after the Great Depression to prevent institutions from becoming so big that their potential collapse takes dozens or hundreds of others along with them. In effect, the rule compartmentalizes the financial industry by leveling a firewall between risky investments and consumer checking and savings accounts, and it worked.

However, Glass-Steagall was overturned with the passage of the Commodity Futures Modernization Act, signed by President Bill Clinton in an attempt at bipartisanship. It stripped derivatives markets of all regulatory oversight and tossed the firewall between commercial and investment banking, allowing companies like Citigroup to merge their operations and launch "financial supermarkets" which rapidly became "too big to fail."

While some of the worst effects of institutions growing so large were addressed by Dodd-Frank -- like requiring banks have more capital on-hand in the event of a crisis and mandating that they submit bankruptcy plans before a collapse rather than after -- it didn't do away with "too big to fail." Even though that move is supported by people like former Citigroup CEO Sanford I. Weill, who helped create the financial supermarket model, President Barack Obama has never backed restoring Glass-Steagall.

"A third part of this is going to be holding on to that little consumer agency," Warren said of the CFPB. "Now that's a place we didn't have to make a lot of compromises. We got a good, strong consumer agency." She added that after just a year of operations, "it has already forced the big banks to refund half a billion dollars that they had cheated consumers out of."

"And it's just getting underway," Warren continued. "That agency is working on mortgages, on credit reports, on student loans. It's going to make a big difference. We're going to have to have some protection for that agency. The House of Representatives already has three bills to weaken it, to politicize it, to change its funding and to get rid of it outright. Mitt Romney has said on day one of his presidency, he will ask for a repeal of Dodd-Frank, which I presume includes the consumer agency. We've got to have a bunch of House and Senate folks who are willing to fight back against that."

"Those are my top three on Wall Street accountability," she concluded.

A Western New England University Polling Institute survey released Sunday put Warren 4 points ahead of Sen. Scott Brown (R-MA), 50-46, with a 4 percent margin of error.