Michel Rocard Demanded Glass-Steagall Now: ‘This Law Drew Us Out of the Crisis’

In May, former French Prime Minister Michel Rocard gave an interview to the financial web daily, La Tribune, decrying the absence of any financial reform since the crash in 2007, which he said has created the conditions for a new and probable “financial explosion.” Mr. Rocard calls for the reenactment of Roosevelt’s Glass-Steagall Act, and also attacks the liberalism that reigns in particular at the European Commission and among the countries of Northern Europe. He falls short, however, of dumping the idea of a European economic government, always put forth by the very liberals he attacks.

Rocard went back to the 2009 crash

“where taxpayers were asked to save the financial system in order to avoid the recession from degenerating into a profound depression. … But nothing has been done since. A mass of world liquidity made available for speculation ballooned since 2006, with no regulation. In the monetarist logic, it is private banks which emit currency: the total amount of world liquidity is $800 trillion i.e. many times the world’s GDP. Two percent of those sums are used to finance trade, 98% are totally speculative. Despite the decision made in 2009, it all can start again. … There is no safeguard today against a new financial explosion, in my opinion probable, which in one single blow could have an effect as devastating as the crisis of the 1930s.“In 1930, the governments were so panicked that they aggravated the crisis, until Roosevelt’s arrival. He adopted the stimulation policies that we know. But above all, with the Glass-Steagall  Act, which forbade any financial establishment from mixing the two trades [investment and commercial], he started to break speculation. Any bank managing deposits had the obligation of ensuring their security, which meant not taking the slightest risk. Any investment is already a risk; it is thus forbidden. And a firm specializing in risk—and they are necessary—must do it with its own funds, or with capital dedicated to those types of dealings.

“This law drew us out of the crisis. In 1945, the rest of the developed world copied that model. That explains largely the `Thirty Glorious years,’ and the absence of financial crisis during some 50 years … until the 1980s. Europe restarted then, and we came back, progressively, to the universal banks that had prevailed until the 1930s. My government (1988-1991) became compromised in that process, because I hadn’t yet understood everything: It was in 1988 that the total liberalization of capital movements was decided upon.

“… If I had then the information that I have today, I would have demanded also a police force against market speculation. Pierre Bérégovoy [then Finance Minister] was against that strategy because he didn’t want to irritate Germany, which was still hesitating to create the euro. He betrayed me, and negotiated this with François Mitterrand behind my back. It is thus that I discovered in the press, the decision to liberalize capital movements entirely. We capitulated to a stupid doctrine, illustrated by Germany. The financial crash of 2006-2008 imposed the need to come back to the Glass-Steagall Act. … The problem is that in all countries, starting with the U.S., but also Europe, banking power has taking over the governments which thus don’t think. It is governments which adopted the economic doctrine of bankers, with the approval of public opinion, and the enthusiastic support of the financial media, which blocks the return to the separation of the banks.”

Rocard concluded that the

“priority of priorities is the financial affair. It is the immediate speculative danger which is the greatest and which could provoke a terrifying recessive tornado, 1930 style.”
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