Sometimes Wall Street reform seems completely hopeless. After all, it’s been over four years since the collapse of Lehman Brothers, and we still haven’t seen much change.

However, there’s good reason to keep up the fight.  Right now there are three laws aiming to reform Wall Street that actually have teeth and could make a real difference. Here’s a very brief introduction to each and an explanation of why each is worth supporting.

1. SB 985 to Restore Glass-Steagall

Last week—exactly 80 years after the original Glass-Steagall bill was introduced—Senator Tom Harkin introduced a bill to restore Glass-Steagall. This depression-era law separated vanilla commercial banking from speculative investment banking. It broke up the enormous and unwieldy banking conglomerates and made sure that customers’ deposit money wasn’t tied to the speculation on Wall Street.

Why you should support it: Breaking up the megabanks will make them easier to manage, diminish their size, and reduce the likelihood that any of them are “too big to fail.” Also, by separating investment and commercial banking, the banking lobby will be more fractured, making it harder for the megabanks to uniformly capture Congress.

Read more about the bill.

2. Terminating Bailouts for Taxpayer Fairness Act (Brown-Vitter Act)

The Brown-Vitter Act would require the six US megabanks to raise at least 15% equity instead of their current levels of ~5%. When Wall Street banks only have 5% equity, it means that their activities are funded on 95% debt—meaning that a loss of just 5% could wipe these banks out and make them insolvent (leading them to make demands for more bailouts).

Why you should support it: By requiring Wall Street banks to raise 15% equity, the Brown-Vitter bill would effectively require that the Wall Street banks foot their own bill in a downturn rather than pushing the bill on innocent taxpayers. It would also end implicit Wall Street subsidies and lead Wall Street banks to break themselves up.

Read more about the bill. Also see The Bankers’ New Clothes, which explains why it’s essential to raise equity requirements.

3. The Franken-Wicker Amendment

In 2010 Senators Al Franken and Roger Wicker proposed an amendment to Dodd-Frank that would require the rating criteria for Wall Street products to be determined by an independent board rather than the (captured) rating agencies. It’s like this: In the lead-up to the financial crisis, the rating agencies were paid directly by the Wall Street banks, creating an insane conflict of interest: Each rating agency was motivated to give Wall Street’s products the best ratings so Wall Street would continue to employ them and not take their business to a competing rating agency.

Why you should support it: The conflict of interest between Wall Street and the rating agencies led to thousands and thousands of financial products on Wall Street receiving good ratings that didn’t deserve them. This fiasco directly led more and more people to invest in these products, which ultimately hurt us all tremendously when it was discovered that the well rated products were toxic and essentially worthless. We can’t afford to keep the status quo with the rating agencies.

The Franken-Wicker Amendment was postponed because government agencies wanted to do research before implementing it. Well, now the research is done, and as of last week the amendment is back up for debate. Read more about the amendment.

Conclusion

We advocates of Wall Street reform can talk about why Wall Street is awful all they want, but such complaints will only really make a difference as they lead the public to pressure legislators to reform the law.

If politicians know that their constituents will not accept business as usual on Wall Street, they’ll be far more likely to act. We need to channel the justified anger at Wall Street into direct action, and each of these bills are worthwhile for that achieving that end. Tell your Senator to support Wall Street reform. (And if your Senator already supports these reforms, thank them for their efforts.

Think the big banks should be broken up? See why you're in good company. We created this mini-documentary to showcase some of the many people calling to break up the banks. The first two minutes set up the argument, and the remainder shows person after person joining the bipartisan call to finally (once again) end "too big to fail."

Here's the breakdown:

0:07 -- Bill Moyers (PBS) and Matt Taibbi (Rolling Stone) discuss how little has changed since 2008.
0:27 -- Robert Reich (fmr Labor Secretary) explains why we need to break up the biggest banks
0:47 -- Sandy Weill (fmr Citi CEO) says why he wants the banks to be broken up
1:04 -- Byron Dorgan (fmr Senator) gives the history of breaking up the banks.
1:32 -- James Rickards (investment banker) lists the folks who allowed the banks to get big again.
1:41 -- James Komansky (fmr CEO, Merril Lynch) regrets his decision to allow banks to get big again.
1:57 -- Luigi Zingales (economist, Univ. of Chicago) on the danger of consolidated banks.
2:13 -- Sheila Bair (fmr FDIC Chair) on why she would like to see the banks broken back up.
2:18 -- Nassim Taleb (NYU professor) calls the big banks a "cartel."
2:30 -- Joseph Stiglitz (Nobel laureate, Columbia economist) on why we don't have ordinary capitalism when banks are so big.
2:40 -- Nouriel Roubini (NYU economist) "if institutions are too big to fail, they are too big."
2:54 -- Simon Johnson (MIT economist) wonders if bigger really is better.
3:18 -- Neil Barofsky (TARP inspector) explains exactly what needs to happen.

A few of the politicians who want to end TBTF
3:41 -- Elizabeth Warren
4:00 -- Bernie Sanders
4:17 -- Ted Kaufman
4:32 -- Sherrod Brown
4:44 -- (quotes Alan Greenspan)
4:50 -- David Vitter (quotes George Will and Maureen Dowd)

5:29 -- Robert Reich drives it home
5:42 -- Now what?
5:49 -- "After the Great Depression we broke up the banks. We should do that again."

photo credit

Today The Economist held an online debate between two world-class economists about whether it'd be smart for the US to break up the biggest banks.

Simon Johnson from MIT argued for the motion, while Charles Calomiris from Columbia argued that there are better solutions. 

Johnson says that the megabanks "bear little resemblance to any form of traditional banking" and are instead "primarily large international speculative trading houses." He argues that simplifying them by breaking them up would return these banks back to normalcy and help us avoid future bailouts.

Calomiris, on the other hand, asserts that "breaking up global banks is not necessary for avoiding 'too big to fail' because there are other less draconian measures—which have not been tried and which are very likely to work."

We think both viewpoints have merit and deserve attention, but we tend to side more with Johnson simply because he's not saying that breaking up the big banks is the only good solution out there. Instead, he's merely saying it'd be better than the status quo and one good solution of many. We agree with that.

Currently 80% of the readers polled about the debate agree with Johnson, too.

Check out the full debate here.

image from The Economist

It's a worthwhile question. After all, over 1,000 bankers were convicted following the Savings and Loans crisis in the 1980s and Enron employees faced jail time for their scandals in the early 2000s.

So what's changed?

William Black, a key criminologist in the Savings and Loan crisis, gives one good answer in his 50-page testimonial to the Senate Banking Committee (linked to in the Economist article). Here's a passage:

"We have forgotten the successes of the past. During the S&L debacle, Congress responded to the S&L crisis ... by ordering and funding a dramatic increase in DOJ resources dedicated to prosecuting the S&L accounting control frauds ... President Bush (II), President Obama, and Congress have each failed to emulate the policies that proved so successful in prosecuting elite frauds that caused prior crises."

That is, Wall Streeters have avoided prosecution in the recent crisis because government never really looked for it. Instead, government unquestioningly accepted as fact that while what Wall Street did wasn't cool, it wasn't illegal, and government did this without putting forward the necessary resources to see if that premise were really true.

If they had dug deep, it's sure they would have found something. Again, 1,000 bankers were convicted in the S&L crisis, but 0 were convicted in the recent (and much worse) financial crisis. That's more than not cool; that's criminal. It's time that they ran a real investigation about what happened (and continues to happen) on Wall Street.