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Group wants 1930s financial law

Advocates for tighter investment banking controls want South Dakota's congressional contingent in Washington, D.C., to get on board with a movement to reinstate the Glass-Steagall Act.

The 1933 act aimed to curb the speculative investment excesses that led to the stock market Crash of 1929 and the Great Depression.

The nation has apparently forgotten the lessons of that earlier time, said Robert Hockett, 62, of Pierre, who unsuccessfully ran for the Democratic nomination for governor in 2002.

"It's absolutely imperative that Glass-Steagall gets pushed through. It translates into saving the nation," Hockett said earlier this week. He believes a corrupt banking and investment system is "looting the population and killing Main Street."

Hockett counts himself among a growing chorus calling for the reinstatement of Glass-Steagall. The legislation kept the banking and investment sectors out of each other's business until its repeal in 1999.

The repeal was a mistake, said Hockett, who believes the law's repeal opened the door to rampant speculative trading that resulted in the 2007-2008 financial crisis and still threatens the economy. Speculative trading has created a market filled with worthless toxic assets that are bleeding taxpayers dry, he said.

Hockett raised the same banking system red flags when he ran for governor in 2002, and he thinks the eventual financial crisis and recession validated his earlier warnings.

"Banks have become nothing more than casinos, but they are betting with taxpayer money," he said.

State Rep. Stace Nelson, R-Fulton, and Hockett are members of a loosely bound, bipartisan coalition favoring reinstatement of Glass-Steagall

Nelson's signature was among those of present and past state lawmakers on a letter delivered this week to members of the Senate Banking Committee.

Other signers include Sens.Tim Begalka, R-Clear Lake; Jim Bradford, D-Pine Ridge; Jason Frerichs, D-Wilmot; Ryan Maher, R-Isabel; Jeff Monroe, R-Pierre; and Reps. Dennis Feickert, D-Aberdeen; Kevin Killer, D-Pine Ridge; Dean Schrempp, D-Lantry; Betty Olson, R-Prairie City, and former lawmakers Frank Kloucek, Patty Miller and Lyndell Petersen.

The letter urges the Banking Committee and committee chairman U.S. Sen. Tim Johnson, D- S.D. "to hold immediate emergency hearings on the reinstatement of the Glass-Steagall Act."

The letter cited Senate Concurrent Resolution 6 -- passed in February by 83 percent of the combined houses of the South Dakota Legislature -- as its authority.

SCR 6 urges Congress to "enact legislation that would reinstate the separation of commercial and investment banking functions that were in effect under the Glass-Steagall Act (Banking Act of 1933). That Act prohibited commercial banks and bank holding companies from investing in stocks, underwriting securities, or investing in or acting as guarantors to derivative transactions, in order to prevent American taxpayers from being called upon to fund hundreds of billions of dollars to bail out financial institutions."

Nelson, who describes himself as a Republican with "a mean libertarian streak," said the state Legislature's resolution proves there's strong support for the Glass-Steagall legislation.

"SCR 6 had overwhelming bipartisan support in both chambers," Nelson said.

SCR 6 passed the state Senate 19-16 and passed the House 67-2.

"South Dakotans, including myself, are not fans of the 'too big to fail' mentality," Nelson said. "A lot of people didn't like what happened when individuals and corporations who abused our financial system had to be bailed out."

Sen. Tim Johnson does not think Glass-Steagall is needed. He believes, unlike Glass-Steagall proponents, that the Dodd--EMDASH--Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama in 2010, provides the needed financial sector controls.

"Throughout my chairmanship on the Banking Committee I have made oversight of Wall Street Reform a top priority and have held a number of hearings on this issue of systemic risk -- most recently on July 11," wrote Johnson in an email response this week.

"We have learned at those hearings that most economists say a return to Glass-Steagall would not address today's challenges," Johnson continued. "Size, risk and complexity are not synonymous, and I believe Wall Street Reform passed by Congress in 2010 provides the tools necessary to end 'too big to fail.'"

Rep. Kristi Noem, R-S.D., provided the following statement when asked if she would back a new Glass-Steagall Act.

"I have had the opportunity to meet with Glass-Steagall advocates on numerous occasions in South Dakota and Washington about reinstating this Depression-era law that was repealed in 1999 during the Clinton Administration," she wrote.

"I remain opposed to designating banks or other large financial institutions as 'too big to fail,' which could lead to future taxpayer bailouts. The best way to achieve this is to ensure regulatory reform is focused on the issues that caused the problems that led to the financial crisis in 2008."

Noem did not respond to follow-up questions on what she thought those issues might be and what remedy should be used.

Sen. John Thune, R-S.D., did not respond to a Daily Republic email asking if he backs Glass-Steagall.

Sioux Falls businessman and activist Tim Luke, who issued a news release on behalf of the Glass-Steagall backers, is convinced the United States will never see a sustained recovery without the reinstatement of Glass-Steagall. He said studying Glass-Steagall has consumed five years of his life, and he's convinced it's needed.

"A CBS poll shows that 25 percent of people don't earn enough to cover their bills and 47 percent are barely squeaking by," he said. "Under the current financial system, we're all headed in the same direction as Detroit."