Finance for the Rest of Us
November 20, 2023
In this incisive chronicle, Epstein (The Political Economy of Central Banking), an economics professor at the University of Massachusetts, Amherst, surveys how deregulating banking turned the financial institutions into engines of inequality and liabilities to the economy. In the wake of the 1929 stock market crash, Epstein writes, New Deal reforms—most notably the Glass-Steagall Act, which “broke up the financial conglomerates by separating investment banking from commercial banking”—reined in banks’ ability to make risky investments and inaugurated decades of relative stability. However, corporate lobbyists succeeded in rolling back regulations from the 1970s through the end of the century, culminating in the 1998 repeal of Glass-Steagall, which made it easier for banks to push “highly speculative and risky financial products” and precipitated the 2008 financial crisis. Epstein outlines an ambitious slate of reforms, including the establishment of public banks, which he suggests will be disincentivized from risky behavior by their not-for-profit status. Other recommendations to “break up the banks by separating investment and securities activities from deposit taking and lending” and rein in private equity by “limiting the use of debt in buyouts” offer a robust plan for regulation, and Epstein’s skill in describing financial matters plainly is a boon. Epstein convinces with this potent plan for ending the era of “too big to fail.”