
A re-instatement of Glass-Steagall - tvon
http://market-ticker.org/archives/1710-Now-Were-Talking!-Glass-Steagall.html
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mnemonicsloth
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.

~~~
hristov
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
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?

~~~
barrkel
Well, the institutions can hold the world economy to ransom, so not giving
them money would be cutting off our nose to spite ourselves.

Better not to have such powerful and important banks.

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yummyfajitas
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?

~~~
hristov
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.

~~~
yummyfajitas
_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).

~~~
hristov
"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."

We are really getting into details here. This was technically partially true,
because Glass Steagall was being progressively watered down long before it was
actually repealed. So commercial banks were allowed to underwrite some
securities but again there were limits as to how much they could do. I think
the limit started at 5% of revenue and then progressively expanded to 25% as
GS was being further watered down. But I doubt banks would have been allowed
to create the huge amounts of mortgage backed securities they did after the
repeal, even in the most watered down version of GS. Also, when the original
article argued for the reinstation of Glass Steagall they probably argued for
it in its original non-watered down version.

As to your second statement, you said "Instead of speculating in "finance",
lending went to speculate in "productive assets" like equities and bonds." To
me this means that you misunderstood what the original article was trying to
say. By productive assets the original article meant direct loans to
businesses and individuals instead of financial instruments.

~~~
yummyfajitas
Glass-Steagall prevented banks from running a trading desk, not from
securitizing and selling their loans. You are simply mistaken as to what the
law actually means.

 _By productive assets the original article meant direct loans to businesses
and individuals instead of financial instruments._

A direct loan to a business is, by definition, speculating on a corporate
bond.

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ube
I heard about Glass-Steagall last month on NPR via Robert Reich
([http://marketplace.publicradio.org//display/web/2009/11/04/p...](http://marketplace.publicradio.org//display/web/2009/11/04/pm-
reich/?refid=0&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+APM_Marketplace+%28APM%3A+Marketplace%29))

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

~~~
TheElder
This Robert Reich?

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

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

~~~
kissickas
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.

~~~
spamizbad
If you think it's racist then you must have skipped the history lesson on The
New Deal whereby, in an effort to secure the votes necessary, they
(House/Senate) basically had to promise key members that the recovery would
touch the "right" people. The right people in this case being white males.
Blacks, Asians, and Women of all races were largely cut out of the New Deal
unless hiring them was a necessity due to lack of able-bodied white men.

Whenever economists speak of jobs programs for everyone, not just "white male
construction workers", this is what they're eluding to.

~~~
kissickas
Thank you, I did not know that.

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Scott_MacGregor
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>

~~~
ube
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_MacGregor
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>

~~~
Scott_MacGregor
I agree with you Tome, I am not saying it is bad, just that it was allowed to
happen and that is where the problem is. Now we taxpayers have to pay those
who did this with our earnings after they knowingly shot the system down in
flames.

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jwb119
this entire article is just conclusory. why will these things happen? he
doesn't give any evidence..

