Do you think the Glass-Steagall Act should be brought back to prevent risky bank investments?
Glass-Steagall was inacted in 1933 to separate commercial banking and investment banking. Most of it was repealed in 1999, and there have been serious bank problems since then.
I do believe Glass-Steagall should be brought back. It took a serious depression for the powers that be to realize that banks using citizen deposits to speculate don't work for the majority of people. If somebody wants to work the market, just get a stockbroker. A bank is different - it is a place where conservative ideas like savings deposits earning a modest return are placed into conservative investments like small businesses and mortgages. Under Glass-Steagall you could depend on that. Today, we have banks avoiding small business loans, carrying a huge portfolio of nonperforming loans, or sitting on the Federal Government's doorstep waiting to be bailed-out. And, of course, JPMorgan (a bank in the grey zone approved to enter into the markets with everybody's money) just took another flier on derivative investments and got beaten on nothing more than a "trade." We do not need traders in banks. "Investment Banks" don't need to speculate to raise capital.
What has gone on for the last 4 years (and before) won't stop until something like Glass Steagall (wouldn't it be nice if they just brought back Glass Steagall? - think of the savings) is brought back.
Absolutely. Our economic collapse is inevitable without it. The Glass-Steagall act must apply to mortgage lenders of all types as well. Thank you for bringing it up.
It sounds like a nice idea, but in reality a big part of the reason the act was repealed was it wasn't being observed anyway prior to it's repeal. Banks had created seperate holding companies to segregate the commercial from the investment banking. But if one was effected it would effect the holding company and subsequently the other arm of the holding company.
In reality it was the banks that had a more diversified business platform in both retail and investment banking that didn't need a bailout. The financial institutions that were in the most trouble such as Lehman and Bear Sterns had no commercial arm and were unable to weather the storm. That is why the first thing the Federal Reserve did at the beginning of the crisis was open the discount lending window to the investment banks back in 2008.
The heart of the problem is not the seperation of these institutions but rather the excess artficial demand in the CMO market created by the GSE's ( Fannie & Freddie). They created demand that the marketplace on it's own could have never produced. It is simply well intended but misguided social engineering of the financial system. The best way to balance greed is with risk. If Goverment agencies begin to subsidize risk, then all that is left is greed.
Thank you, LandmarkWealth, for your well thought out comments. It is a very controversial issue, I know. Personally, I think the banking system was operating a bit more smoothly before Glass-Steagall was gutted. However, I know some disagree.
Bank of America, Wells Fargo Bank, WM - these institutions took on risky mortgages due to the fact that Clinton era wording of policy at GSE's (or libberal interpretation) led to what is no more than mortgage speculation.New Steagall to define limit.
Banks don't like to loan money to people who can't pay them back. But if the GSE's will buy the loan off of your books, then why not. Gov't intervention for the purpose of social engineering creates market disloacations.
A good review of what Glass-Steagall was and was not, see http://www.wnyc.org/articles/its-free-c … be-enough/ Article will help them who question Glass-Steagall tothink again.Would have helpd
Ideally, yes! I think the reason PresidentClinton was persuaded to sign its repeal was the fact that it had lost its effectiveness. Deregulation has since been a disaster!
Yes, I agree that deregulation of the banks and brokerage firms has been a disaster ... and it continues to grow. There are a few legislators who talk about reviving Glass Steagall, and I hope comments like yours encourage them to proceed.
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