WASHINGTON — Even Aaron Sorkin's new hit HBO show "The Newsroom" wants to weigh in on the merits of Glass-Steagall, which separated commercial banks from investment banks.
In last week's show, Sloan Sabbith, played by Olivia Munn, the economics correspondent for a fictional cable news network, is seen explaining to her executive producer MacKenzie McHaile, played by Emily Mortimer, how the financial system nearly toppled over.
"So after the Great Depression, Congress wanted to put a firewall between the [banks and the] investment banks," she said. "They wanted to make sure that Wall Street could melt to the ground and the commercial banks wouldn't be touched. They passed a law, the Glass-Steagall Act. Now you could be Gordon Gekko or George Bailey, but you couldn't be both." Gekko, of course, was the avaricious tycoon in the movie "Wall Street" while Bailey was the quintessential small-time banker in the classic "It's a Wonderful Life."
But with the repeal of Glass-Steagall in 1999, Sabbith explains, those investment bankers could now make risky bets with taxpayers' deposits, eventually causing the financial crisis.
The discussion prompted a column by The Washington Post's Steven Pearlstein, who says Sorkin's portrayal is "not true — not even close."
"Yet it has been repeated so many times — on PBS and NPR, in the liberal blogosphere, on very serious Op-Ed pages, in an Oscar-winning documentary — that whehnever I give a talk to a group of college students about the financial crisis, the first question predictably is, 'Yeah, isn't all really about the repeal of Glass-Steagall?'"
Pearlstein says this argument is similar to the right's fixation with Fannie Mae and Freddie Mac, the companies many conservatives say caused the crisis.
"Repeal of Glass-Steagall has become for the Democratic left what Fannie Mae and Freddie Mac are for the Republican right — a simple and facially plausible conspiracy theory about the crisis that reinforces what they already believed about financial markets and economic policy," he said.
Both arguments, Pearlstein concludes, are false.
"But why let facts get in the way of a good screenplay?" he writes.