Newsweek reports that this week John McCain and firebrand Maria Cantwell will join forces to offer a bill in the Senate to restore Glass-Steagall, the Depression-era law that forced a firewall between Commercial and Investment Banking.  It was repealed in a bill sponsored by Phil Gramm and signed by Bill Clinton, and allowed commercial banks to deal in over-the-counter derivatives that were not regulated by federal agencies, and allowed incredibly large leverage ratios by commercial banks.   That law's repeal plus the Commodity Futures Modernization Act, which effectively banned even state regulatory agencies from monitoring derivatives are the two laws many feel led to the insolvency of the Big Banks, and the meltdown of the stock market leading to the Mega-bailout of the Financial Industry.

Cantwell has been on the financial case since 1999, and seems to be one of the most informed Senators on financial matters.  McCain believed the reason he lost his Presidential bid was due  to the Meltdown.  His comments were unhelpful at best, pathetic at worst (remember he suspended his campaign to help, then sat silent in the White House meeting?).  Perhaps he is looking for some street cred to bolster his image, perhaps he believes the system needs major Regulatory reform that is so elusive right now.

These two may attempt a perhaps Quixotic solution of a big part of the problem.  Paul Volcker, former Fed Chair and Arthur Leavit, Jr., former SEC Chairman, are both supportive; many other economists have indicated support over the past year. 

The Newsweek piece gives plenty of quotes by detractors of the bill; and the White House weighs in, too:

 Obama administration officials have dismissed the idea that the financial sector should or can be changed in more fundamental ways than they are now proposing. You can't turn back the clock, they say, and the new requirements they plan to impose on big banks to hold more capital in reserve, put up $150 billion for a rainy-day rescue fund, and disclose more of their risky trades should be enough to keep the financial sector from imploding again. Many of these requirements, among others, are contained in two giant bills making their way through Congress--one that passed the House last week and another that will be debated in the Senate in the new year. "I think going back to Glass-Steagall would be like going back to the Walkman," says one senior Treasury official.

It would be an easy rallying cry as a starting point for grassroots activism. I know from experience that not all Café regulars support the idea.  From my limited knowledge of the issues, I do.  Most people whose opinion I trusr believe that the current reform packages are weak, and in some areas the loopholes are so huge, that they could actually compound certain problems.

The "Rainy Day Rescue Fund" mentioned could literally codify Too Big to Fail according to some experts.  Ugh.