GLASS: It's nice to be here; I don't get out much any more. As to my inventiveness... The true mastermind of the Federal Reserve banking system was Woodrow Wilson..., but many others made constructive contributions...

REGION: ...The Federal Reserve has been dismantling the Glass-Steagall Act's walls between commercial and investment banks. As one of the architects of those walls, do you regret the changes?

GLASS: If you put yourself in my place and time, you would have done as I did. Our subcommittee did not act out of any prejudice or in a whimsical or inadequate way. We consulted practical bankers and experts extensively. We did everything but sleep with experts, and we learned that national banks had created affiliates as a way of doing precisely those things that the National Bank Act prohibited them from doing..., affiliates were the slippery conjurations of lawyers. Shrewd men operated them and entwined the parent banks in great difficulties. Banks lent their names, prestige and tradition of sound banking operations to these affiliates, and on that basis did people invest and transact business with them. When calamity struck, not all bankers felt a responsibility to the citizens they had enticed. Not all bankers could afford to.

Our subcommittee heard testimony about many virtuous affiliates, but we also heard of abuses, especially in securities dealings, and the weight of informed opinion was that the affiliate system was riddled with vicious practices. Two of the country's most eminent bankers who testified had already got rid of their affiliates without any governmental prompting, but opinion varied about whether affiliates should be liquidated, or whether they should be separated from the commercial banks, or whether their powers should be trimmed and they should be subjected to more or less severe supervision, as banks were.

We could not single out exceptional cases. Congress must act by general legislation, and in the end we aimed for a happy medium. We allowed a decent period for banks and their securities affiliates to uncouple, and we subjected other affiliates to greater or lesser safeguards and supervision, depending on their activities. We hoped those measures would answer the public's loss of confidence, protect depositors and investors, and help prevent Federal Reserve facilities from being used in support of stock and commodity gambling, which had brought on the Depression and about which I had been warning for 14 years or more...

REGION: ...The insurance of S&L deposits put the government to great expense not long ago. ...

GLASS: "Great expense" is a tepid description of a catastrophe. The best reform of government insurance would be to wash the land entirely clean of it, though it take all the waters of Abanah and Pharpar to do it. If it were not so tragic, it might be amusing how many people discovered the problem of moral hazard only after the savings and loan associations went bust. When we passed the Federal Reserve Act, we knew all about moral hazard. One version of our currency bill would have devoted half the Reserve banks' excess earnings to deposit guaranty, but every plan that experts and politicians devised was either a sham or would have visited the sins of reckless banks either upon the government or upon banks that themselves bore no taint of wickedness or improvidence, and would thus encourage sin. No one ever proposed a solution to that problem that satisfied me, or has yet. When I stood before the House of Representatives in 1913 and declared that not one dollar of government funds should ever go toward the guaranty of bank deposits, the welkin rang with applause from both sides of the aisle.

REGION: But surely the government bears a responsibility. Bank failures impose calamitous losses on individuals who are not well positioned to protect themselves.

GLASS: In my experience, once a man learns that he is at risk, he will find a way to protect himself. And there is no better learning experience than to see his neighbor lose a portion of his deposits in a panic. ...

President Wilson, the best educated president we have ever had in political philosophy, deplored philanthropic government, but the country has grown accustomed to it. Protecting citizens against loss is a philanthropic goal, but as we predicted in 1913, the national government cannot keep bank losses at a tolerable level, once it has shifted risk to itself—or, rather, to its taxpayers—without a mammoth and expensive bureaucracy to dictate banking practices in ever more minute and oppressive detail to experienced and practical bankers. I am more persuaded than I ever was that the government should not be in this business.

REGION: That confuses me. Isn't your name on the bill that put the government in this business?

GLASS: A legislator may sponsor a bill for different reasons...; and in emergencies he may support emergency measures that are unsuited to calmer times. It was clear that the country needed prompter and more orderly arrangements for liquidating banks. A man wrote me from Missouri, for example, that his bank had been six years in the hands of a manipulative receiver and he had not seen one cent of his money. I also recall a Montana bank whose affairs could not be wound up in under 28 years. Those problems deserved legislative correction.

REGION: It's too bad you needed a banking crisis to get that legislation.

GLASS: It is nearly impossible to get banking reformation in this country without a crippling national emergency, and even then, bankers tell us to wait for better times because their situation is precarious and reform will break them. But when better times arrive, they tell us to wait yet awhile, because reform will upset their fragile prosperity. Bankers and their myrmidons and hired pigwidgins always threaten a torrent of disasters. They think the time is always right to reform others and the time is always wrong to reform them. Furthermore, if Congress waits as bankers instruct and gives some new villainy time to take hold and become familiar, bankers then defend the practice as if it were a birthright of finance handed down to them from Justinian by way of the Medicis and Alexander Hamilton himself, with which it would be impious and disruptive for the government to interfere.

In this fog of selfish rhetoric, all a poor member of Congress can do is keep a list of needed improvements and bide his time until a financial catastrophe gives him his chance, and then he must legislate at once or wait for the next debacle. This is a wasteful, unscientific process. It delays useful remedies until the banking system is racked with infection, and it brings in desperate cure-alls, quack nostrums and overdoses that may be worse than the disease and, though meant to be temporary, often continue for decades after the fever breaks. ...