Warren Stephens goes liberal | Arkansas Blog

Warren Stephens goes liberal



UNLIKELY LIBERAL: Warren Stephens goes Rooseveltian on big banks.
  • UNLIKELY LIBERAL: Warren Stephens goes Rooseveltian on big banks.

Ernie Dumas writes this week about financier Warren Stephens' op-ed in the Wall Street Journal — a call to revive something like the bank regulatory legislation of the Roosevelt era, the Glass Steagall Act, that generally only liberals love.

Dumas notes that this puts Stephens, no liberal generally, squarely in the camp of long-time Arkansas Gazette business writer and editorialist, Leland Duvall, the "sage of Moreland."

The full column follows:


This is not quite on the plane of Republican Governor Frank White suggesting in 1982 that Arkansas socialize the private power industry, but it is about as head turning. Warren A. Stephens, the head of Arkansas’s and the region’s most formidable financial house, penned an op-ed editorial in the Wall Street Journal the other day suggesting that the government crack down on the big banks like Franklin D. Roosevelt did.

Unlike his Uncle Witt, Stephens would never utter a paean to FDR, and he did not even mention Roosevelt or the New Deal, but he said Congress made a terrible mistake in scrapping the Glass-Steagall Act, the 1933 banking law adopted months into Roosevelt’s first term as an antidote to the financial crash of 1929 and the Great Depression and that it should embrace something like that law again to avoid another crash and the inevitable sorrows that will follow.

Stephens’s notion that banks should not be permitted to become “too big to fail,” in the current parlance, is not original or radical, but those who share it tend to be scarce and liberal. He joins Sherrod Brown of Ohio, about the last of the real liberals in the U.S. Senate, at times Paul Volcker, the aging former Fed chairman under Jimmy Carter, and a few others.

Stephens is not a liberal. Even now, he is ponying up large sums of money for the campaigns of Republicans who are bent on the opposite course, undoing even the anemic banking reforms of the Obama administration and turning the bankers loose once again to awaken the slumbering American economic engine.

The CEO of Stephens Inc. has never professed liberal or populist tendencies, or demonstrated any, but with a few rustic flourishes his WSJ op- ed would read like it had been written by the wisest economic sage of the last century, Leland Duvall, the author of Moreland’s Laws of Economic Behavior.

Duvall, who wrote for the Arkansas Gazette for 45 years, believed that the finest exhibition of legislative genius, ever, was the Banking Act of 1933 (Glass Steagall), which separated commercial and investment banks and erected a scheme of rules for what banks and other lending and investment institutions could do to make money without unduly risking their customers’ assets. The periodic financial collapses and depressions that had marked the growth of the American republic from 1837 until 1929 vanished, lending institutions flourished after the recovery, and the country grew almost seamlessly for 45 years—until restive bankers persuaded Washington to remove the fetters and let them show once again what they could do.

Stephens wrote that while the Dodd-Frank financial reform bill in 2010 sought to limit the size of banks to forestall another crisis like the one in 2008 that sank us into the current malaise, the big banks are bigger than ever. He suggested forcing banks to divest if they exceeded 5 percent of the nation’s deposits (Dodd-Frank says 10 percent and it is not airtight) and restoring Glass-Steagall’s separation of commercial and investment banking.

The Arkansas financier could have a peeve at Bank of America and others that can poach on his turf with the protected assets of their depositors, but I do not credit him with guile. He sounds too much like Duvall.

“It is time we rid ourselves of banks that are too big to fail,” he wrote. “The threat that these mammoth financial institutions represent to our economy is too great. Size and scale are not the advantages they were thought to be. In fact, they are the problem.” He owned up to believing the opposite only a few years ago when Stephens family enterprises eagerly participated in the expansion of banking from state to regional to national, which had once been barred by Glass-Steagall.

Perhaps the worlds of finance and politics will heed this voice from the Arkansas wilderness when it didn’t the rustic warnings of Duvall. After all, Stephens has access periodically to the editorial columns of the Wall Street Journal and owns an MBA. Duvall’s highest pedigree was his eighth- grade report card at Moreland grammar school, and the easternmost reach of his words was Armorel.

When Congress first chipped away at Glass-Steagall in 1980 to liberate savings and loan associations and Reagan administration regulators gave the thrifts “forbearance” to go out and seek greater fortunes than could be had in the dull home-mortgage trade, Duvall wrote that it would pretty much doom the thrifts. Arkansas’s big thrifts soon leaped into the booming Dallas real-estate market and, of course, went down with it. Most of the nation’s S&Ls collapsed, and with the help of thrift bailouts from the Reagan and Bush I administrations the taxpayers eventually took a $124
billion hit.

When Reagan’s nominee for the Supreme Court, Robert Bork, wrote an appeals court order that permitted the National Westminster Bank in Washington to offer brokerage services and investment advice, forbidden by Glass-Steagall, Duvall wrote that the gates had been opened and the end would not be pretty. Reagan’s appointees to the Fed Board had overridden the chairman, Volcker, and authorized Westminster to poach on the brokerage business. (Mitt Romney, you will recall, says that when he becomes president Bork will be his oracle on all matters regarding justice.)

Duvall began an editorial a short while later: “The difference between the pilot of a four-wheel-drive pickup or Jeep and the conventional motorist is that the daring driver gets stuck in deeper swamps. In a way, the rule holds
true in the financial community, where bankers are tempted to park their Cadillacs and Continentals, mount their Land Rovers, and venture into the high-risk fens and marshlands that currently are the province of securities dealers, managers of mutual funds, and other free-wheelers.”

An MBA and the Wall Street Journal require a more elegant metaphor but Stephens and Duvall found the same conclusion.

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