The problem continues… pirates brazenly attacked another U.S. ship just days after Captain Phillips’ rescue, and many other ships continue to be hijacked with every passing day.

Last year, Somali pirates carried out over 100 attacks on ships traveling around the Horn of Africa.  Currently, there are 17 captured ships and more than 250 hostages awaiting ransom, not afforded the kind of spectacular rescue that saved Captain Phillips’ life – or the tragic one that left Florent Lemaçon dead.  Captured ships have included massive oils tankers, and ships carrying caches of expensive weapons and ammo.

Unveiling a four-point plan last week, Secretary of State Clinton announced she is bringing together the State Department, Defense Department, Justice Department and intelligence community members “to consider recent events and potential responses,” and is calling for prosecution of pirates (the teenage ringleader of the attack on the Marsk, captured by US Navy forces, will be facing trial in a New York court) and the largely symbolic act of “freezing” pirates’ assets – a very difficult thing to do, since the pirates operate in an unregulated economy in a country that hasn’t had a stable government in nearly two decades.

Clinton said the administration will send an envoy to an April 23 Somali donors’ conference in Brussels.  With no effective central government since 1991, the country has become a safe haven for pirates, with no functional police force and easily bribed officials.  In the face of rampant poverty and few viable options for making a living, too many young Somalis are turning to piracy, and the Brussels conference intends to address all these root causes.

“The solution to Somali piracy includes improved Somali capacity to police their own territory,” she said, adding that the United States “does not make concessions or ransom payments to pirates.”

The reality however is that these ransom demands, sometimes as high as $3 million, are generally paid by U.S. shipping companies and considered a part of the cost of doing business in the region.  Defense Secretary Robert Gates said Friday that the continued willingness to pay these ransoms is hurting our ability to fight the Somali pirates.

Clinton spoke last week of “hot pursuit,” referencing a policy authorized by the U.N. last December but largely undiscussed in America – going after pirate bases in Somalia.  But after President Bill Clinton’s failed attempt at nation-building in 1993 which left 19 Americans and over 1,000 Somalis dead, and the horrors of the U.S.-backed Ethiopian invasion in 2006, Americans have little desire for another fight for Mogadishu.

Not surprisingly, Gates has recommended a civilian plan focused on restoring stability in concert with any military action.  He was adamant that until the situation is Somalia is improved, “we can put a lot in jail, and we can kill a lot, but there’ll still be more.”  Further, Gates is advocating a more flexible, lightweight military approach to the pirate problem; “As we saw last week, you don’t necessarily need a billion-dollar ship to chase down a bunch of teenage pirates.”

Somalia has the longest coastline in Africa, covered with tiny villages and ports, making naval control a near impossibility.  But while the solution obviously cannot be purely military, this is a real and growing problem that will require intervention from the U.S. as well as the international community.  Perhaps we can encourage China to use its growing navy to spend more time fighting piracy and less time harassing our ships.

But we should make no bones about it – piracy is terrorism.  Despite the lack of religious extremism on the part of the criminals,  the problem is the same.  Exploitative chicken-hawks use and abuse impoverished youths for their own twisted benefit, and we often pay the price.

Thomas Jefferson understood we cannot tolerate piracy, and so must Barack Obama.

The 1933 Glass-Steagall Act was a response to the stock market crash of 1929 and the ensuing Great Depression, and it accomplished two very important things.  The first was the establishment of the Federal Deposit Insurance Corporation (FDIC), protecting bank deposits up to a certain limit in order to prevent bank runs and maintain a modicum of consumer confidence in their banks.  The other important piece, the part that is germane to this discussion, was the prohibition against bank holding companies owning other financial companies like securities and insurance firms.

Glass-Steagall was the bane of the banking industry for decades.  As far as they were concerned, these were outdated and unnecessary regulations which prevented them from making the kind of gangster-money that was their birthright.  Since the early 1980’s, the financial sector had been lobbying to remove these restrictions.

From the 1987 Congressional Research Service report on preserving Glass-Steagall:

The argument for preserving Glass-Steagall:

1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act.

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

The argument against preserving the Act:

1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.

2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.

3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.

4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.

So essentially the arguments for preserving the Act were “we’ve been down this road before, we know where it goes, and that’s why this law exists.”

As for the arguments against; number 1 seems a stronger argument for increased regulation of securities firms and foreign institutions operating within the U.S. rather than an argument for further deregulating consumer banks.  Numbers 2 and 3 just seem naive, but perhaps only because hindsight is 20/20.  Number 4 is only partially true; most notably China maintains a wall between commercial and investment banking, and intends to continue to do so in the wake of the current crisis.

G7 member nations have not historically done so, but the legal and regulatory frameworks in these countries for financial firms are different than ours, by virtue of the fact that they have not had such a separation.  This goes back to argument number 2; repealing Glass-Steagall would be fine, as long as strong regulation was in place to prevent conflicts of interest and firms becoming “too big to fail.”

Never underestimate the venality of politicians. In 1998, regulators allowed Citicorp to acquire Traveler’s Group, a move that was technically still illegal under Glass-Steagall.  So the obvious solution was to simply undo the law.  In 1999, the banking industry got its way with Gramm-Leach-Bliley.

In fairness, while the bill derives its common name from 3 Republican congressman who sponsored it, it was signed by a Democratic president and received bipartisan support in the House.  Doing favors for campaign contributors is a bipartisan issue.

The apologists for GLB point out, rightly, that it was not responsible for the mortgage crisis.  But let’s not conflate the sub-prime crisis with the current economic problems we’re facing.  Reading the proponents (even FactCheck.org’s refutation of claims that GLB is responsible for our current economic woes) is oddly quaint at this point in the game.  In the early fall of last year, the statement that “Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase have weathered the financial crisis in reasonably good shape” seemed sound when the Dow was still above 10,000 – now they are patently absurd.

The meme that says that Fannie and Freddie were the problem, that subprime mortgage holders are at fault, is the classic “blame the victim” routine.  Risky mortgages are only a problem when they’re over-leveraged – when debt is treated as if it were wealth.

The problem is really quite simple.  What the  repealing of Glass-Steagall has ultimately done is allow the financial sector to balloon to a  ridiculous size, with derivatives now accounting for $1.114 quadrillion (that’s $1,114,000,000,000!) – 22 times the GDP of the entire world.  Too much of our economy is based on people pushing around numbers on paper, and it’s being concentrated in fewer and fewer hands.

Given the fact that banking and investment firms have been allowed to merge into behemoths like AIG and CitiGroup, we can be held hostage by a small handful of “too big to fail” firms – “bail us out with no strings attached, or the economy will crash.”

Too big to fail means too big to exist.  Otherwise, we set the stage for forced corporate welfare – we socialize the losses, and privatize the profits.  If we don’t break these companies up and restore a financial sector that can absorb individual firms going under, we will be bailing them out for decades to come.