75 years ago, when my grandmother was 14, the United States Congress lumped together a variety of banking reforms and called it the Glass-Steagall Act, after the two southern gentlemen who co-sponsored the bill.
Among other things, the defined the difference between a commercial bank (i.e. deposits, etc.) and an investment bank (product structuring/securitization, etc.), and made it so that financial institutions had to keep the two separate, to prevent the conflicts of interest seen during the banking crash of 1933.
In 1980, it was repealed. The Senate vote ran 54-44 (R-D), and was pushed by heavy lobbying by any measurable financial player at the time (Citigroup mainly).
So, that sounds bad, sure — but what did the repeal directly lead to? The creation of MBS’s, CDO’s, along with their being lumped into SIV’s — and by now we all know how well those worked out.
Am I saying that the current financial crisis was caused by the repeal of the act? No, but the legislating time and billions of dollars being spent on smoothing out the collapse of credit markets is something which could have been accomplished by simply allowing the bill to stand as a safeguard against the imbalance between expert securitizers and dough-eyed investment funds.
This entry was posted on Sunday, October 19th, 2008 at 7:00 am and is filed under Economy, News Commentary. You can follow any responses to this entry through the RSS 2.0 feed.
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Citi and the Repeal of the Glass-Steagall Act: To blame?
75 years ago, when my grandmother was 14, the United States Congress lumped together a variety of banking reforms and called it the Glass-Steagall Act, after the two southern gentlemen who co-sponsored the bill.
Among other things, the defined the difference between a commercial bank (i.e. deposits, etc.) and an investment bank (product structuring/securitization, etc.), and made it so that financial institutions had to keep the two separate, to prevent the conflicts of interest seen during the banking crash of 1933.
In 1980, it was repealed. The Senate vote ran 54-44 (R-D), and was pushed by heavy lobbying by any measurable financial player at the time (Citigroup mainly).
So, that sounds bad, sure — but what did the repeal directly lead to? The creation of MBS’s, CDO’s, along with their being lumped into SIV’s — and by now we all know how well those worked out.
Am I saying that the current financial crisis was caused by the repeal of the act? No, but the legislating time and billions of dollars being spent on smoothing out the collapse of credit markets is something which could have been accomplished by simply allowing the bill to stand as a safeguard against the imbalance between expert securitizers and dough-eyed investment funds.
This entry was posted on Sunday, October 19th, 2008 at 7:00 am and is filed under Economy, News Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.