Christen Soerensen, Danish economist, professor, and former first chairman of the Danish Council of Economic Advisers, referred to as the “Wisemen,” issued the following statement today supporting the reenactment of a Glass-Steagall bank law. It is excerpted from article, soon to be published, about the need for a Financial Crisis Inquiry Commission in Denmark, where a new Social-Democratic-led three-party-coalition government assumed power on Oct. 3.

“With abundant clarity, the financial crisis has shown that it is necessary to have tight regulation of the financial sector. Since the beginning of the 1980’s, a comprehensive deregulation/liberalization of the financial markets has been carried out, beginning, in the U.S., during Ronald Reagan’s presidency. In the U.S., that culminated with the Gramm-Leach-Bliley law from Nov. 1999, which, among other things, repealed Roosevelt’s Glass-Steagall law from 1933, which prevented banks that accepted deposits from being involved in the issuance of securities, etc.

In connection with this, not least in the U.S., many kinds of obstacles were put in the way of the financial oversight authorities’ control of the financial supermarkets which arose after the implementation of the Gramm-Leach-Bliley law. Deregulation/liberalization and the lack of control of the financial sector was, not least, supported by the former American Federal Reserve Bank Chairman Alan Greenspan, who had an ideological belief that financial institutions would be self-regulating and responsible. This, and the failure of the credit rating bureaus, were the decisive preconditions for the development of the financial crisis up until September 2008, which culminated in the collapse of Lehman Brothers’ investment bank….

Roosevelt’s Glass-Steagall law from 1933 meant that banks that accepted deposits could not be involved in very risky activities, like issuance of securities, etc. The resulting barrier between normal bank activity and more speculative activity was, as stated, removed with the Gramm-Leach-Bliley law from Nov. 1999. In the U.S. right now, there are strong proponents for reinstating the principles of the Glass-Steagall law, so that the stockholders behind these activities, and not the taxpayers, should bear the losses caused by failed speculative financial transactions.”

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