A re-instatement of Glass-Steagall

http://market-ticker.org/archives/1710-Now-Were-Talking!-Glass-Steagall.html

by tvon • 17 years ago

40 38 17 years ago

This seems kind of like closing the barn door after the horse has already gotten out (and lions have eaten the horse). Just an empty barn full of taxpayers’ money that is not being lent out. A case of the fox watching the henhouse and we taxpayers seem to be the chickens.

http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

ube2• 17 years ago

The barn door was closed with this act until 1999 when it was repealed. How is that "closing the barn door after the horse has already gotten out"?

Scott_MacGregor3• 17 years ago

Reinstating it now is like closing the door. The damage has already been done, the system has been raped and pillaged already. Closing the door will not fix the damage.

Closing the door is a Paraphrase.

Definition: http://en.wikipedia.org/wiki/Paraphrase

gaius• 17 years ago

Remind me who was the POTUS then?

mattmaroon3• 17 years ago

That had more totally non-applicable down-home folksy sayings per paragraph than the average Sarah Palin speech. Kudos.

ube2• 17 years ago

I heard about Glass-Steagall last month on NPR via Robert Reich (http://marketplace.publicradio.org//display/web/2009/11/04/p...)

It sounds like a better approach then many regulations that lead to very little.

TheElder• 17 years ago

This Robert Reich?

http://www.youtube.com/watch?v=opxuUj6vFa4

http://www.youtube.com/watch?v=nT1TkLgfinE

kissickas2• 17 years ago

Unfortunately, even if I do agree with you that Robert Reich is a racist, that is an ad hominem argument and I don't see how his racism would have a strong influence on his view of the Glass-Steagall Act.

yummyfajitas5• 17 years ago

From the article: ...will prevent the economic meltdown we are in the middle of from ever happening again..by making it impossible for those banks with access to the sovereign's fractional reserve privilege to speculate with it.

The author doesn't seem to realize that Glass-Steagall won't prevent commercial banks from making bad home loans.

From the article: Lending went to finance productive assets (e.g. factories, machines, tractors, combines, etc) instead of financial speculation as it had in the 1920s.

Instead of speculating in "finance", lending went to speculate in "productive assets" like equities and bonds.

Seriously, what is this tripe doing on HN?

karzeem2• 17 years ago

I think the difference between equity speculation and bond speculation is important. Debt bubbles are much more catastrophic than equity bubbles.

mattmaroon3• 17 years ago

Right, the problem wasn't as much the home loans as all of the side-wagering. Nobody really knows the exact extent, but the credit default swaps are believed to be one to two orders of magnitude more money than the CDOs they were based on. Lehman and AIG in particular were destroyed by them.

hristov6• 17 years ago

Glass-Steagall will definitely prevent what happened in the current housing crisis. The bubble happened because banks were lending money for homes but were not keeping the loans. Instead they were packaging the loans as securities and selling the securities to third party investors. Thus, the banks did not need to worry that the loans were good, they just needed to worry the loans looked ok to the rating agencies at the time of sale of the securities. The third party investors had no idea who the borrowers were or how trustworthy they were, they just trusted the rating agencies. And the rating agencies turned out to be either stupid or corrupt or both.

This would not have been possible with Glass-Steagall in force. Banks can still make loans but they could not securitize or sell the loans. They had to keep the loans on their books. This means the institutions and even individual people that made the loans would be responsible that they got paid back. Furthermore, all loans that are on the books would be regularly examined by banking examiners from the FDIC. When securitizing the loans, banks mostly avoided examination, on the grounds that they got their money for the loans so it does not matter much whether the loans perform or not.

Now it cannot be guaranteed that Glass-Steagall will prevent bubbles in general, but it is certain that what happened last time could not possibly happen with Glass Steagall in effect.

Regarding your second statement, I think you are confused about it again. When Glass Steagall was in effect regular commercial banks were rather limited as to the securities they could purchase. I believe they were allowed to make only 10 percent of their income from securities. They had to make most of their money by making loans directly to borrowers, instead of trading securities. That is what the article is referring to.

byrneseyeview3• 17 years ago

That is how securities markets work. Exactly the same forces affect, say, the CEO who owns .1% of his company's outstanding stock. Not an ideal situation, but not one that should be banned.

I believe they were allowed to make only 10 percent of their income from securities. They had to make most of their money by making loans directly to borrowers, instead of trading securities. That is what the article is referring to.

You're probably talking about the time before S&L deregulation, when, at one point, savings and loans had an aggregate negative net worth because they could only make long-term loans (mortgages and treasuries) and thus got buried when rates went up. Despite our current problems, I don't believe the US's financial sector has had a negative net worth since then. It should be pretty compelling to you that despite higher leverage, intertwined derivatives, the disastrous market manipulations of Fannie and Freddie, etc., our less regulated system is still less of a disaster than what came before it.

yummyfajitas5• 17 years ago

The bubble happened because banks were lending money for homes but were not keeping the loans....This would not have been possible with Glass-Steagall in force.

False. This happened all the time with Glass-Steagall in force. Glass Steagall was repealed in 1999, mortgage backed securities were issued and sold long before then. Many commercial banks traded MBS under Glass-Steagall as a way of reducing their risk; in fact regulatory bodies encouraged them to do this.

You are incorrectly conflating many activities, and assuming Glass-Steagall prevents all of them.

As for my second statement, I'm mocking the article's silly idea that investing in "productive assets" is somehow different from "financial speculation." I'm not making any claims about what percentage of their assets they would speculate with (either in the form of equities or bonds).

mnemonicsloth2• 17 years ago

According to this guy, there are no downsides to a policy that will have the side effect of breaking up all of America's largest financial institutions.

In his closing he says that passing this measure will "usher in a productive explosion in America that we have not seen in the last 50 years."

The last 50 years have already seen the largest sustained economic expansion in all of human history. Is that not good enough somehow?

I want my ten minutes back.

hristov6• 17 years ago

I know it is such a great thing that we have all these large financial institutions. You know because they are so large they become too large to fail, and then we get to subsidise them with out tax dollars. Who would want to end that?

andylei• 17 years ago

i seems like your beef with these companies is that we're subsidizing them.

so is the problem the institutions that are asking for money? or our politicians that are giving them money?

mnemonicsloth2• 17 years ago

If there's one thing the financial crisis has taught everyone, it's that we need less humility in the face of world-spanning systems no one person can possibly understand.

Sarcasm is definitely the way to go if you want to foster a productive debate.

dantheman• 17 years ago

Too large to fail has always been bullshit; it really has no bearing on this. They got a handout, let's not pretend it was justified.

jwb119• 17 years ago

this entire article is just conclusory. why will these things happen? he doesn't give any evidence..

A re-instatement of Glass-Steagall

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