By Stephen Labaton N.Y. Times News Service WASHINGTON _
Momentum is building rapidly in Congress and among federal
regulators to repudiate and rewrite many laws and economic
regulations that were pillars of the New Deal of the 1930s.
The changes, advanced by the Bush administration and moving
quickly through Congress, which returns from its summer recess
today, represent a fundamental shift in the philosophy of
Earlier in this century, rules were formulated to restrict the
growth of financial powerhouses; the new view holds that
conglomeration is better for the economy and helps the nation to
The House and Senate Banking Committees have already adopted
important legislation to repeal Depression-era regulations that
restrict the ability of banks to grow and enter new businesses, and
other legislation making its way through Congress would overhaul
laws restricting the growth of utilities.
Already the Banking Committees have approved legislation that
would eviscerate the Glass-Steagall Act, which broke up the House
of Morgan by restricting commercial banks from underwriting
The committees' swift approval of the legislation has been
taken as a sign by many officials and lawmakers that Congress will
adopt sweeping banking legislation this fall.
"We think it's very likely that there will be Glass-Steagall
reform this year," Treasury Under Secretary Robert R. Glauber said.
"The only question is whether it's good reform or bad reform,"
he added, referring to the administration's preference for the
Senate version, which would permit commercial banks to lend money
to affiliated investment banks.
The final legislation is likely to constitute a refutation of
the progressive populist movement that arose after the market crash
The movement, one of whose intellectual fathers was Louis D.
Brandeis, sought to decentralize economic power through laws that
established a central bank and ultimately broke up the House of
Morgan, the leading trusts of the day, and the public utilities
that dominated economic life.
For more than a half century, those laws and regulations have
framed the nation's financial system.
But now the Bush administration, many lawmakers and the
regulators themselves have concluded that these laws are outdated
and that they inhibit the United States' ability to compete.
The new philosophy, which is rapidly gaining widespread
support, is that the Depression-era rules have lagged behind the
realities of the marketplace, contributing to the crisis in the
banking industry and hindering energy policy by restricting
industrial companies from the power business.
"In the 1930s, we assumed that decentralization was the way to
prevent mischief, and there was a basic mistrust of bigness, fueled
by a period of populist upheaval," said Robert B. Reich, a
professor of political economy at the John F. Kennedy School of
Government at Harvard.
"Now the world has changed fundamentally, through advances in
technology and the globalization of the marketplace. As a result,
the concerns of the 1930s are not on anyone's mind. Washington is
acting as if the Great Crash and many of the excesses of the 1920s
Lowell L. Bryan, head of the banking group at McKinsey & Co.,
the management consulting group, said the change reflects a
shifting view from "the fear of bigness in the 1930s to the new
fear that American institutions in the international sphere have
As a consequence, such cornerstones of the New Deal and its
aftermath as the Glass-Steagall Act of 1933; the McFadden Act,
which was amended in 1933; the Bank Holding Company Act of 1956,
and the Public Utilities Holding Company Act of 1935, are coming
Another product of the Depression, the Investment Company Act
of 1940, which regulates the enormous mutual fund industry, is also
in the process of undergoing a thorough re-examination by the
Securities and Exchange Commission, although changes in that law
are not likely to be as radical as those in the other laws. …