Wednesday, December 16, 2009

Bring Back Glass-Steagall!

Perhaps I was wrong about John McCain going the way of the nit-wits.  Seperating banking and investment, as I've previously advocated, is a good start in getting Wall Street back to reality.  Investment -Banker?  An oxymoron.  Probably won't fly with all the money floating around Washington, but here's props to McCain and Cantwell.
At a 10 AM press conference this morning, Senators John McCain (R-AZ) and Maria Cantwell (D-WA) will introduce the Banking Integrity Act to reinstate the separation between banking and investment activities that existed from 1933 until it was repealed by the Gramm-Leach-Bliley Act of 1999. The idea is to reduce risk of large financial institutions by separating investment activities from other banking. The problem with that is that it would put U.S. banks at a competitive disadvantage with their foreign competitors, so alternatives should be considered. Looking back on it, Gramm-Leach-Bliley was a key mistake that led directly to the 2008 financial crisis. However, the Senate seems unlikely to pass any financial reforms before the 2010 election. Allowing this financial crisis to pass without rewriting of the rules to prevent it from happening again would be a crime.
Just a further thought...Why is McCain, whose chief financial advisor was Phil Gramm, going against Gramm-Leach-Bliley?  Me thinks more to come.

7 comments:

  1. Well, at this point our nation is at a VERY key competitive disadvantage with foreign competitors. Our national debt has reduced foreign confidence in the dollar. There is a possibility that we will lose our triple A rating, according to some econonmists. We may also see the base currency used for oil move away from the dollar. Of course we need to regulate our financial institutions, but I wonder if we are trying to close the proverbial barn door well after the horses have galloped away.

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  2. This post is about the US banking system, the law of the land regarding said system, (one of which being glass-steagall), and the causation of abandonning such act in 1999 by Bill Clinton, Alan Greenspan, and Phil Gramm. I have not read any economist that doesn't think changing this act did not in some way, exasperate the current economic crisis we are in. In fact, most I believe, feel that it had a strong responsibility for said crisis.

    In simplest terms the original act made sure there was a seperation of banking and investment. The former being thought of as the "gold standard", staid, strong, and backed by our government (FDIC), and the latter, also thought of as the gold standard in the world, nevertheless, more speculative, risky, and thus more rewarding. Banks were never supposed to be the place to invest money for large, high percentage growths, our fine investment houses were for that, think of Lehman Brothers, American Express, and Merrill Lynch. Banks were where one would put their money for more fixed period, lower yield, backed by FDIC deposits, think savings accounts and CD's.

    After they changed the law, the banks were free to get their grubby fat fingers on any investments there were, also alas, making new ones up like credit default swaps along the way. One of the things this did was lead to the bundling of mortgages, some bad, but most good, and by the second or third buyer of such debts,(today's bank/investment houses) their value could not be determined. That is still the case today after a year with this mess.

    One can read Fox and other right-wingers blame the problem all on the bad people who said yes to mortages that they couldn't afford, from real estate agents who had really no regulations selling these too big houses to people they knew could not afford them, to the bank/investment companies who positively knew that they were funding mostly good mortages, but many that had no way of paying the mortage, because the regulations too lax and also because of a mathematical formula they came up with that said something like "x" amount of yearly income and "x" amount of a deposit would lead to (I don't know, making it up) 85% positive payments. Unlike in the past, they didn't check out the buyer. Unbelievable as it seems, often buyers weren't required to show proof of income! Were fannie and freddie and the democrats in congress to blame? Hell yeah. So were the republicans who hold just as much, if not more of it. The whole system insane and ludicrous, but just a part of our overall crisis.

    So today, because of this, we are in a crisis where we have the fed bailing out our bank/investment companies and even an insurance company (AIG) because they are too big to fail! You want a cause to get behind? There are several here.

    Glass-Steagall is not likely to be brought back into law, because as Dick Durbin said 5 months ago, "the banks OWN congress".

    I'm about 3/4 of the way through reading libertarian congressman Ron Paul's new book "end the fed". It makes for interesting reading.

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  3. I understood that it was about the banking & investment systems. But we are still getting screwed financially with the current fiscal debacle which is passing for an economic policy, and we could well lose our AAA rating. I remember sitting on the couch with my mouth hanging open when W announced the TARP & spoke of abandoning free market principles to save the free market. The sheer size of TARP scared me half to death. Then along comes Obama & his stimulus was tacked on top of TARP. Both the elephant & the donkey are KILLING us with debt. The debt is our number one threat today, hands down, and no one seems to get it.

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  4. The national debt as of July 2007 is 8.9 trillion dollars and rising. The interest on the national debt for fiscal year 2006 has been reported to be 245 billion dollars. (It is probably closer to 500 billion dollars.) Congress has raised the debt ceiling from 3 trillion dollars, to 6 trillion dollars, to 9 trillion dollars. That is, Congress has authorized the national government to borrow up to 9 trillion dollars. (Given that the 9 trillion dollar mark has almost been reached, it is a sure bet that Congress will soon raise the debt ceiling another 3 trillion or so.Congress, the Executive, the Judiciary and the central bankers know (and probably intend, that we, the people, will never be able to pay the national debt. This is inflation and its ment to wipe you out. The more of a dept the higher inflation, the less the dollar is worth , the less you can afford, Healthcare, your morgage, education,food, its not that prices are going up its that a dollar is worth less.. and "free trade" it' a doubl wammy.. not only cant you afford it now you dont even have work. Baaahhh mooo

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  5. richza you are out of the loop. The debt has surpassed 12 trillion dollars. Bookmark this page: www.usdebtclock.org

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  6. Rich, I don't know if you have, but if not, you REALLY ought to read Ron Paul's latest "End the Fed." Your comments echo his sentiments closely.

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