Four senators recently reintroduced an updated version of the 1933 Glass-Steagall Act – and right wing Republican John McCain was one of them.  The other three: Progressive Democrat Elizabeth Warren, moderate Democrat Senator Maria Cantwell, and liberal Independent Senator Angus King.

The original Glass-Steagall Act was passed as a way to mitigate the economic damage that came in the wake of the Stock Market Crash of 1929 – and to prevent such a disaster from happening again. The law prevented a single financial institution from doing business as a commercial bank, an investment bank and an insurance company – or any combination thereof.

For 65 years, that law worked very well in avoiding a replay of  “Black Tuesday.” Then, in 1998, a commercial bank holding company  known as Citicorp acquired Travelers Group, an insurance company. The result was a bloated conglomerate known as Citigroup. The new entity consisted of Travelers and two “financial services” companies – Smith Barney (now Morgan Stanley Wealth Management) and Primerica. The merger was a blatant violation of the Glass-Steagall Act.  However, instead of taking action against Citigroup, the Federal Reserve granted it a “waiver.”

It was shortly thereafter when three corporatist Congressmen sponsored the Gramm-Leach-Bliley Act of 1999, which allowed commercial bank officers and employees to work at an investment bank at the same time. The “official” reason for the law: “to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, and other financial service providers, and for other purposes.”

Significantly, during debate over the bill, Democratic Representative John Dingell of Michigan warned that, far from “enhancing competition,” the Gramm-Leach-Bliley Act would enable these bloated financial “services” entities to grow “too big to fail.” Nonetheless, the bill was passed along party lines (53 Republicans and 1 Democrat voting in favor and 44 Democrats opposed). President Bill Clinton subsequently signed the bill into law.

Almost seventy-nine years after Black Tuesday, Representative Dingell was proven right – and we, the taxpayers, wound up footing the bill.  Small wonder that vast numbers of people have lost faith in these financial institutions, which have shown little indication of changing their ways.

The “21st Century Glass-Steagal Act” applies to banking institutions insured by the Federal Deposit Insurance Corporation (FDIC). It is intended to “reduce risk in the financial system and dial back the likelihood of future financial crises.” If the bill becomes law, it would once again prohibit commercial banks insured by the FDIC from engaging in investment services and selling insurance.

Senator McCain’s main concern is not about banks growing “too big to fail,” but rather, restoring consumers’ faith in the financial system.  He says:

Big Wall Street institutions should be free to engage in transactions with significant risk but not with federally insured deposits. If enacted, the 21st Century Glass-Steagall Act would not end Too-Big-to-Fail [banks], but it would rebuild the wall between commercial and investment banking that was in place for over 60 years, restore confidence in the system, and reduce risk for the American taxpayer.”

Whatever McCain’s reasoning, it is significant that four Senators from across the political spectrum have joined forces to sponsor the new version of Glass-Steagal. It may not address everything wrong with our financial system, but it is a step forward.

K.J. McElrath is a former history and social studies teacher who has long maintained a keen interest in legal and social issues. In addition to writing for The Ring of Fire, he is the author of two published novels: Tamanous Cooley, a darkly comic environmental twist on Dante's Inferno, and The Missionary's Wife, a story of the conflict between human nature and fundamentalist religious dogma. When not engaged in journalistic or literary pursuits, K.J. works as an entertainer and film composer.