When did Banks become big?

[chuckmann]

There are two very good books out there covering this topic.

Bailout Nation

This book begins with the federal bailout of Lockheed in the early 70's and follows through with Chrysler, the big banks in the early 80's, the S&L bailouts, and then all the fun stuff we know and love today.

Senseless Panic

Written by the former head of the FDIC, and the man who engineered the bailouts of three major banks in the early 80's, the author takes to task the bailing out of the big banks in the late 2000's while not firing the managements who brought those banks to the point where they needed bailing out. Interesting read into the nuts and bolts of how the FDIC works.

there is a third book, Too Big To Fail, which I have not read but whose author I heard on Brinker a while back. IIRC I liked what the author said.

Subtitled: The Inside Story of How Wall Street and Washington Fought to Save the Financial System--and Themselves

[middle-aged mom]

Originally Posted by SourD

They became too big to fail when Clinton repealed the Glass-Steagall Act. Once banks were allowed to steal your savings money to invest they became too big to fail because someone has to repay the stolen money. The Federal Government HAD to label them "too big to fail" because they were the ones that opened the doors and ALLOWED banks to take your money without permission and invest it and the Feds don't want to be on the hook for allowing this and be responsible for YOUR lost money, so they put the tax payer on the hook for paying YOU back.

Oh lordy. Here we go again. Glass- Steagall was never repealed.

Greenspan, under Reagan, ushered in the era of reduced regulation. Greenspan advocated to allow Citibank and Travelors Group to merge which put insurance, brokerage and commerical banking under one bank holding company. The rational for this scenario was to allow U.S. banks to compete on a level playing field with their European counterparts who never had the sort of restrictions that prevented insured banks from underwriting and trading securities.

Greenspan gave the merger temporary approval despite a conflict with a portion of the 1933 banking act and then went to work on Congress.

The Gramm- Leach-Biley Act 1999 ( all Republicans for those into partianship) was crafted to "modernize banking and financial regulation" . One lone Democrat congressman voiced his objection and said it would create a " too big too fail bank". It was eventually passed by a bipartisan vote of 343-86 (Republicans 205–16; Democrats 138–69; Independent 0-1. The senate had already passed its version of the bill by a much-narrower 54–44 vote along basically-partisan lines (53 Republicans and 1 Democrat in favor; 44 Democrats opposed). Clinton did indeed sign it into law.

Fast forward none years to the financial crisis. Bear Stearns, Lehman Bros., Merrill Lynch and Goldman Sachs were all investment banks, not commercial banks. AIG was not a commerical bank. Glass-Steagall or the subsequent Gramm- Leach-Biley Act played no part in their role in the financial mess.

The two largest bank failures, Wamu and Wachovia, failed the old fashioned way- too many bad loans to too many borrowers. Neither Glass- Steagall nor the subsequent Gramm-Leach- Biley Act played a role in these failures.

Did Gramm-Leach- Biley Act create the basis for "too big to fail" as it relates to Citigroup? The jury is still out. Would the failure of Citigroup have caused a domino effect within the domestic and international banking world? You betcha. BTW, Citigroup repaid TARP back in 2009.

[middle-aged mom]

Originally Posted by txgolfer130

They became too big to fail in the late 70's early 80's. They were too big not to affect our economy massively in the 1940's.

The plan to make the bigger and more intertwined has been occurring since the mid to late 50's, put forward by a team led by a young upstart named....Alan Greenspan when he worked for Brown Brothers Harriman and the National Industrial Conference Board.

You nailed it.

[middle-aged mom]

Originally Posted by lucknow

Well Boom, if you have read many of my posts you would know I'm a pretty extreme liberal so what I am about to say is contrary to my usual comments.

The Canadian banks got $0 as a bailout and the entire story from CBC is an example of very poor journalism from a source I usually respect. The reality of the situation is that there was a liquidity problem because of the entire world wide credit crunch. This could have cause big problems all throughout the Canadian economy. The solution was for the government to lend the banks money and the banks put up very good collateral for those loans. The government also charged the banks the going commercial interest rates on those loans. The federal government has ended up making a profit on this purely {Business} decision.

The taxpayers were never on the hook for a dime and the money was in the form of a loan.

Does that sound like a BAILOUT to you?

It fails to meet one single definition of such.

This is not too different in concept to TARP, the government being the lender of last resort in a liquidity crisis and taking collateral in exchange for the loan. I swear some folk who post here, think money was given to the U.S. banks with no expectation of repayment.

[middle-aged mom]

Originally Posted by chuckmann

There are two very good books out there covering this topic.

Bailout Nation

This book begins with the federal bailout of Lockheed in the early 70's and follows through with Chrysler, the big banks in the early 80's, the S&L bailouts, and then all the fun stuff we know and love today.

Senseless Panic

Written by the former head of the FDIC, and the man who engineered the bailouts of three major banks in the early 80's, the author takes to task the bailing out of the big banks in the late 2000's while not firing the managements who brought those banks to the point where they needed bailing out. Interesting read into the nuts and bolts of how the FDIC works.

there is a third book, Too Big To Fail, which I have not read but whose author I heard on Brinker a while back. IIRC I liked what the author said.

Subtitled: The Inside Story of How Wall Street and Washington Fought to Save the Financial System--and Themselves

May I also recommend "Unintentional Consequences" by Edward Conrad, former partner at Bain Capital and friend of you know who.

[lucknow]

Originally Posted by middle-aged mom

This is not too different in concept to TARP, the government being the lender of last resort in a liquidity crisis and taking collateral in exchange for the loan. I swear some folk who post here, think money was given to the U.S. banks with no expectation of repayment.

The difference is that the collateral put up by the banks in the USA was in many cases worthless financial instruments. The Canadian banks put up insured mortgages and a Canadian insured mortgage is an absolutely sure thing. Our mortgage insurer CHMC actually is very profitable.