GannonFan wrote:kalm wrote:
Touché!
Funny how, because of my Canada slip up, you still think you're right about G-S You're the Kornheiser of CS.
I am right about Glass-Steagall and Canada proves it for me. There is no need for an artificial barrier between a deposit bank and an investment bank. And frankly, having one would only hurt both since there are plenty of places, like Canada (thanks again) that don't have the barrier. It's a red-maple leaf-herring.
The problem lies in the risk that's taken, and it's further clouded by how the risk is assessed. And it keeps coming back to the housing debacle. Canada didn't trumpet home ownership like we did, through both Democratic and Republican administrations, and then take risky steps (deducting interest on mortgages, direct entities to pursue more risky sub-prime loans, hide that risk by classifying it as the same level as sovereign debt and allowing institutions to hold that as reserve capital) to continue to push that number higher and higher for press headline purposes, all the while continuing to steadily increase government spending as a % of GDP and driving up debt, while clamping the doors shut to productive immigration by capping visas - we couldn't have done more things to cause this recession to happen than we did. And in all of that, Glass-Steagall was just a tiny, tiny, inconsequential part of all of it. And considering that even depository institutions could deal in mortgage-based deals even with that in place, you're at a point where GS was really pointless. You might as well have told me that a butterfly flapping his wings somewhere in the South Pacific caused the Japanese tsunami this year and that would've been more accurate.
Look, I get it that it hurts your conk "free market" sensibilities that a lack of regulation is part of the blame but to call GS inconsequential is silly. You and I are in agreement about multiple causes and I would submit that the Commodities Futures Trading Act was equally damaging if not more than Glass Steagal but regardless, they both helped to turn a housing bubble that could have remained a minor recession into a world wide financial meltdown.
NPR has a nice timeline on the history of GS and all the attempts to get it repealed including this little gem:
In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three "outside checks" on corporate misbehavior had emerged since 1933: "a very effective" SEC; knowledgeable investors, and "very sophisticated" rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures - a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.
http://www.pbs.org/wgbh/pages/frontline ... emise.html" onclick="window.open(this.href);return false;
If nothing else, GS helped to prevent too big to fail monopolies which any blue blood capitalist should appreciate.
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