Several of the GOP’s 2012 presidential hopefuls have called — loudly and often — for the repeal of the Dodd-Frank financial reform law, which is aimed at preventing a repeat of the 2008 financial crisis. But with the possible exception of Rep. Michele Bachmann (R-MN), no one has been more adamantly in favor of ditching Dodd-Frank than Newt Gingrich.
Gingrich claims that Dodd-Frank is “killing the banking industry,” and says that job creation will be sparked by simply repealing the bill and letting Wall Street go right back to the same shenanigans that led the nation into the Great Recession. But during an interview today with ABC News’ Jake Tapper, Gingrich admitted that the 1990s repeal of the Glass-Steagall Act — the firewall between commercial and investment banks — was “probably a mistake”:
TAPPER: One question I want to ask has to do with your call to repeal the Wall Street reforms, Dodd-Frank. I don’t think a lot of Americans would understand why anyone would want to repeal regulations that happened after this calamity on Wall Street. If you disagree with those regulations that were imposed, do you agree at least that there should be some new reforms or regulations?
GINGRICH: Sure, there should be very decisive reforms. I think, in retrospect, repealing the Glass-Steagall Act was probably a mistake. We should probably reestablish dividing up the big banks into a banking function and an investment function and separating them out again.
The repeal of Glass-Steagall led to the creation of mega-banks like Citigroup and JP Morgan Chase that combine traditional lending with risky investment banking. Many economists believe that the repeal led to the financial crisis of 2008. “As a result [of the repeal], the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we’re facing now,” said Nobel Prize winning economist Joseph Stiglitz.
Though he had resigned by the time the final blow was dealt to Glass-Steagall in 1999, Gingrich was instrumental in picking it apart. In fact, the New York Times noted in 1998 that, during a failed attempt to repeal Glass-Steagall, Gingrich “scurried through the afternoon to line up the necessary votes” in favor of repeal.
Reinstating Glass-Steagall would require breaking up the biggest banks, a step much further than Dodd-Frank embraced and something to which the Obama administration was never open (to its detriment). But Gingrich is not the only Republican to advocate such a step; both former Gov. Jon Huntsman (R-UT) and Sen. John McCain (R-AZ) have called for a return to Glass-Steagall, as did former Citigroup CEO John Reed, who was instrumental in having the regulation repealed.