Saturday, January 23, 2010

God Damn Glass-Steagall Fixations

Over at Maximum Leader's place, I saw two comments:
Huck Foley, groveling minion said:

“Ach! Zese verdamt ‘bankers,’ vill ve neffer be free uff zem?!”
-Oberfuhrer Baracken Von Obamastein

“… repeal some of the legislation that allowed commerical banks and investment banks to merge and own other types of companies (like brokerages and insurance companies). ”

Seriously, how hard would it be for them to UN-repeal the Glass-Steagall Act? Instead, what I (and apparently Judah Kraushaar) expect we’ll be getting is “Protracted congressional hearings on the bank crisis, piecemeal new regulations, sporadic attacks on bank compensation, and an ad hoc approach to taxing banks…”
Short version: if THIS administration manages to fix this problem, it’ll be an accidental side-effect of their shabby populist demogoguing and scapegoating.
22.01.10 um 3:16 pm

Huck Foley, groveling minion said:

“I can’t recall the name of the legislation from the late 1990s that enabled commerical banks to own investment and insurance enterprises, but reviewing how that legislation has work (or not) might be a good thing.”

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
I wrote a case study about it, actually, but I won’t be trying to shoehorn it into this comments thread, despite my frustration at failing to find a publisher for it.
Very short version:
It acted in conjunction with the Community Redevelopment Act of 1977 to create a giant, fatal bubble in the housing market.
See? Short.
22.01.10 um 3:25 pm

I responded thusly:
Huck Foley:

I’m still waiting for a reasonable explanation why GLB, ie the repeal of Glass-Steagall, caused the problems.

As I see it, GLB allowed BoA to buy Merrill during the crisis, which ameliorated the conditions, not exacerbated them. Lehman and Bear were pure investment banks and the stuff still hit the fan.

The financial system changed since 1933 and the Chinese wall between investment and commercial banks was not only outdated, but unwise. To clarify: I’m all for keeping risky stuff quarantined, but I don’t think either keeping Glass-Steagall or re-instating is the ideal or even an effective way to do so in today’s financial system.

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