Do We Need Another "New Deal?"

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We need a revised New Deal now, because the philosophy behind its elements made sense.

New Deal legislation like the Glass–Steagall Act separated banks that risked their own money from the ones that protected ours. It was uniquely free-market to let investment banks carry the consequence of their own risk. That all changed when the act was repealed in 1999. As soon as all kinds of banks and insurance companies could merge, they quickly grew uncontrollable.

Now, as Wall Street struggles under the weight of its own recklessness, rather than taking a page out of the New Deal, the Federal Reserve and the Treasury Department are spurring on more mergers between banks and investment banks. Even after $700 billion worth of bailout dough is used to buy stock in Wall Street banks, credit card companies and automakers, two problems will still remain.

First, the Fed is on the hook for $3 trillion more since it quietly began allowing flailing banks to post junky assets as collateral for Fed loans. Second, there is still no strategy connecting these injections and loans to fundamental changes or lasting economic recovery. Random does not count as a plan.