Ten years ago today, the Glass-Steagall Act was repealed
Probably the most fundamental cause of our current banking woes.
From the
New York Times:
10 Years Later, Looking at Repeal of Glass-Steagall
Ten years ago to the day, the government reversed one of the key elements of the Depression-era banking laws, knocking down the firewall between commercial banks, which take deposits and make loans, and investment banks, which underwrite securities. The repeal of the Glass-Steagall Act of 1933 was seen at the time as a way to help American banks grow larger and better compete on the world stage.
�Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,� then-Treasury Secretary Lawrence H. Summers said at the time. �This historic legislation will better enable American companies to compete in the new economy.�
But 10 years later, the end of Glass-Steagall has been blamed by some for many of the problems that led to last fall�s financial crisis. While the majority of problems that occurred centered mostly on the pure-play investment banks like Lehman Brothers, the huge banks born out of the revocation of Glass-Steagall, especially Citigroup, and the insurance companies that were allowed to deal in securities, like the American International Group, would not have run into trouble had the law still been in place.
�Commercial banks played a crucial role as buyers and sellers of mortgage-backed securities, credit-default swaps and other explosive financial derivatives,� Demos, a nonpartisan public policy and research organization, wrote in a report discussing the problems it said were caused by the repeal of Glass-Steagall.
And of course, instead of reinstating Glass-Steagall, they fuck things up further by adding another layer of bureaucracy:
But the Senate version of the bill introduced this week by Senator Christopher J. Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, did go further than the House bill. Mr. Dodd�s bill called for the various banking regulators set up in the 1930s, which had separate jurisdictions based in part on the firewall divisions created by Glass-Steagall, to finally be merged into one new agency. The aim is that a single regulator would discourage regulator shopping by financial institutions and lead to better oversight of banks.
Like this new agency is going to be immune from lobbying -- believe that and I have some oceanfront property to sell you. Idaho.
Posted by DaveH at November 12, 2009 10:01 PM