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Newt Gingrich: Maybe Repealing Glass-Steagall Wasn't Such a Good Idea After All

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Like pretty much all of the other Republican presidential candidates, former House speaker Newt Gingrich has been an outspoken critic of the Dodd-Frank financial reforms, saying that they stifle American competitiveness. Financial deregulation has indeed always been a key mantra of the libertarian wing of the Republican Party, so it comes as quite a surprise to hear Gingrich, chief architect of 1994’s Contract with America, admit that repealing the Glass-Steagall Act was a mistake.

Gingrich was interviewed live in ABC’s studio on Tuesday by Jake Tapper when the Dodd-Frank reforms and financial regulation came up (check ABC News for the full transcript).

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 belief that the Glass-Steagall repeal was one of the catalysts of the 2008 financial crisis is a bipartisan one -- Jon Huntsman has alluded to it; John McCain proposed reenacting it in 2009. Even former Citigroup CEO John Reed, one of the key driving forces behind the repeal, supported reviving parts of it.

The repeal of Glass-Steagall of course happened in 1999 when Republican senators Phil Gramm (who incidentally received $4.6 million in contributions from the finance, insurance, and real estate -- or FIRE -- sector over the '90s) and Jim Leach introduced the euphemistic Financial Services Modernization Act, which removed the wall between commercial and investment banks, and also allowed them to also merge with or acquire securities firms and insurance companies.

Among the financial firms that lobbied Congress extra hard to pass this bill was Citi. Led then by John Reed and Sandy Weill, Citicorp had merged with insurance company Traverlers to form Citigroup, the world’s largest financial services firm. But the merger was illegal under Glass-Steagall rules, so Reed and Weill launched an aggressive lobbying campaign to get the law repealed (in 1997-98, the banking, insurance, and brokerage industries spent some $300 million on the issue, the New York Times' Dealbook notes). And Gingrich was a strong advocate of killing the law -- he “scurried through the afternoon to line up the necessary votes” in a failed attempt in 1998.

Repealing Glass-Steagall would require lawmakers to take a big step and break up too-big-to-fail banks like Citi and JPMorgan Chase -- which is perhaps why even Dodd-Frank, introduced specifically to prevent another 2008-like crisis, didn't go that far. Still, while it’s nice that folks like Gingrich are admitting they got it wrong on financial deregulation, it’s confusing to hear them still insist that Dodd-Frank reforms, flawed as they might be, ought to be abolished.

(See also: What Is the Volcker Rule, and What Does It Have to Do With Occupy Wall Street?)
POSITION:  No positions in stocks mentioned.