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Well, a banking system that has been going strong for more then 50 years just fine and less then a decade after it's repealed we have a major economic crisis directly related to gambling with banks money and over leveraging by huge banks.
Why do you insist on blaming investment banks when the GSE's are guilty of securities fraud? How were the investment banks supposed to know Fannie and Freddie were lying about the quality of the loans in their MBS's?
The point is the repeal of Glass-Steigall allowed financial institutions to become so large and entrenched in the overall economy that they were "too big to fail" in 2008. Glass-Steigall would have kept these institutions smaller and involved in fewer segments of the economy.
Would not repealing Glass-Steagall have prevented 'too big to fail?' Not necessarily.* There still would have been significant losses, albeit it they would have manifested themselves in other forms. We still would have the financial crisis and the now unlimited taxpayer-funded bailout of Fannie and Freddie.
The point is the repeal of Glass-Steigall allowed financial institutions to become so large and entrenched in the overall economy that they were "too big to fail" in 2008. Glass-Steigall would have kept these institutions smaller and involved in fewer segments of the economy.
they became 'too big to fail' before the repealing of G-S
1987 chemical bank merged in to jp morgan
1987 first fidelity into wells fargo
1988 fleet into norstar into bank of america
1990 bank of new england into BOA
1992 manufactorers hanover and trust into jp morgan
1996 chase manhattin into jp morgan
1996 Meridian Bancorp into wells fargo
1997 signet into first union into wells fargo
1998 travelrs into citi
1988 barclays into wells fargo
yes many happend after gs.. but the 'too big to fail' happend before Gs
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Quote:
Originally Posted by momonkey
Glass-Steigall, the CRA, misconduct at the GSEs, leveraging worthless CDOs with other equally worthless CDOs, the threatened Democratic filibuster of S.190, ACORN NINJA loans, etc. were all contributors to the financial collapse.
A lot of things had to happen before this event became possible. Repealing Glass-Steigal played a roll in that it allowed certain financial institutions to become "too big to fail". Actually, they became too big and too entangled with the rest of the economy to fail. Had Glass-Steigall never been repealed, Citibank and Traveler's Insurance could have both failed and many others like them since the well run companies could have simply purchased their assets when they were liquidated. But Citigroup is entirely different.
The smart thing for us to do is break up any financial institution that is too big to fail. Glass-Steigall successfully prevented these institutions from becoming too big and too entangled in the economy for some eighty years. Clinton should have left it alone.
Yes, Clinton should have left it alone. But, again, remember what he was facing in 1999. In my mind, it is tragic that among young people, "Lewinsky" is a verb. I think everyone can pretty much use their imaginations from here.
Under Glass-Steagall Investment banks wouldn't have posed a Systemic risk to the entire system. Commerical banks back then couldn't trade securities. An Investment bank is a casino that gambles. It is the securities that caused this whole crisis. The Commercial banks like JP Morgan, Bank of America, Wells Fargo and Citibank would have been free from this crisis. Lehman, Merrill and Bear Stearns could have failed and the vital banking sector the consumer banking sector would have survived. Yeah there would have been a big market drop but not the total disaster we had. PS I not against casinos that gamble just don't take my money.
I hear some making the point that had Glass-Steagall been in place it's more that it would have reduced the severity of the collapse by not having any investment and commercial banks merging so you wouldn't have banks that were "too big to fail".
But I heard someone recently on a news program asking if it was government's role to determine how big any business including banks can get? So is having a regulation like Glass-Steagall giving the gov't the authority to decide how big a business can get? If investment and commercial banks do merge then is there a better approach to dealing with them being too big?
But did the repeal of GS also include provision for the creation of the Derivative (sp) instruments that led to AIG failures?
If I am not mistaken, before these Derivative instruments were in use, (and I believe under GS) banks were required to maintain a certain amount of liquidity. At some point, that changed and instead of holding cash, banks simply bought insurance (derivatives) to cover their exposure.
AIG failed because it held so much of this.
I do agree that Freddy and Fannie committed fraud and that fraud was the thing that got it all started. I do agree that this fraud was created by both the CRA and liberal activists like ACORN working to get loans for people who could not afford to pay those loans back.
But even that had to run afoul of old law that forced banks to hold cash reserves.
I hear some making the point that had Glass-Steagall been in place it's more that it would have reduced the severity of the collapse by not having any investment and commercial banks merging so you wouldn't have banks that were "too big to fail".
But I heard someone recently on a news program asking if it was government's role to determine how big any business including banks can get? So is having a regulation like Glass-Steagall giving the gov't the authority to decide how big a business can get? If investment and commercial banks do merge then is there a better approach to dealing with them being too big?
American government has worked since Teddy Rosevelt to limit the size of businesses. we have a long history of Anti-Trust legislation.
The point is the repeal of Glass-Steigall allowed financial institutions to become so large and entrenched in the overall economy that they were "too big to fail" in 2008. Glass-Steigall would have kept these institutions smaller and involved in fewer segments of the economy.
When they repealed Glass-Stegall they put back in place those lax regulations that led to the Great Depression.
Yet they thought it couldn't happen again. Well by George, those bankers really couldn't oversee themselves, just like the 1920's.
History repeats itself..economies are cyclic in nature.
Glass-Stegall was repealed for a reason folks and the bankers were totally behind this so they could speculate and create instruments they couldn't do under Glass-Stegall.
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