Paul Craig Roberts: Without Glass-Steagall, America will fail

http://www.paulcraigroberts.org/2017/06/09/without-glass-steagall-america-will-fail/ ^ | June 9, 2017 | Paul Craig Roberts

[ganeemead]

This is a long article and a dire warning which must be read. Roberts expresses it in stark terms: without the restoration of the Roosevelt-era Glass/Steagal law and the separation of commercial from investment banking, the United States will collapse.

Roberts' Article

Roberts was Ronald Reagan's Treasury Secretary.

[rstrahan]

You can understand the threat that derivative investing when you realize that the amount of derivative investment are a large multiple of the actual investments. You wold think that a derivative investment of a mortgage would only equal the amount of the mortgage but instead it can be 10-20 times the amount of the initial investment. In other words, the devivative investment is not supported in the market.

[VaRepublican]

The movie “the big short” I thought was pretty good in explaining the whole mess.

[CatQuilt]

bmrk

[Cowboy Bob]

I think allowing investment banks to go public was a bad idea. Should have been kept as partnerships.

[edwinland]

He has a lot of good points but this one is pretty much the opposite of everything Reagan was supposed to stand for:

“As Assistant Secretary of the US Treasury in the Reagan Administration, I opposed all financial deregulation. Financial deregulation does nothing but open the gates to fraud and sharp dealing. It allows one institution, even one individual, to make a fortune by wrecking the lives of millions.”

[redgolum]

For later.

[yefragetuwrabrumuy]

There is a much better, if not simpler way around our problem.

“If a financial institution is ‘too big to fail’ (without harming out economy), then it is ‘too big to continue’ in its present form.”

Importantly, “too big to fail” can have several implications.

For example, if they are over-invested in unsecured practices, like derivatives, it places them at risk for amounts far higher than the entire institution’s value.

This is the corporate version of the margin disaster that helped precipitate the Great Depression. And while the derivatives market is unregulated, involvement in it must be tied to their currently regulated practices.

So a simple choice: either leave the US entirely, so you can play your gambling game; or leave the gambling game for good. If you cannot bring yourself to quitting, then the US government will do it for you.

[billyboy15]

LOL, you are a funny guy! You seem to think the term “Caveat Emptor” somehow means buyer beware except for people like you.

I am an investor with what I feel to be a very, very healthy sized portfolio. In my view there is no such thing as a sure bet OR a guarantee of safety except in the case of FDIC insurance limited to $100,000 per qualified account. And even THAT is subject to the health of the FDIC itself since their funds are not unlimited.

If you cannot afford a loss then stay OUT of the markets and put your cash in a mattress.

Just quit WHINING!

[LS]

Correction, he USED to be a powerful thinker, then Bush Derangement Syndrone drove him nuts.

THE primary study of Glass-Steagall shows that it was based on 100% wrong premises. The idea was that in the Roaring 20s banks had brokerage companies that poured depositor money into the market, weakening the banks thus accelerating the bust.

No.

Eugene White found just the opposite—that banks with brokerages were the leadt likely to fail & were stronger because they diversified their assets. Think of S&Ks in 1970s, stuck in fixed mortgages when interest rates skyrocketed. They had no diversification of assets.

G-S would weaken the banks & make another crash easier.

[ScottfromNJ]

Here’s a counter argument that’s been out there, having Glass Steagall removed helped lessen the severity of the 2008 financial crises by allowing larger banks to buy up the bad debt of the smaller investment banks. In other words, the free market was allowed to go to work to help ease the crises. Just saying.

[Georgia Girl 2]

I agree. Glass Steigal needs to be reinstated.

[Roccus]

I don’t know anything about Glass-Steagall, but I do have to wonder about the mega-companies that keep growing through mergers.

Ya mean like CitiCorp and Travelers Group? Ya see, The repeal of Glass-Steagall was accomplished to legitimize that already illegitimate merger. Slick and Treas. Sec Rudin pushed it through the Republican House in the form of the Gramm(R), Leach(R), Bliley(R) Act. A week after it was passed, Rudin resigned from Treas. and shortly thereafter became head of CitiGroup.

Funny how things work out when yer in government, eh?

[enumerated]

Must disagree with you here.

True, diversification is a good thing and makes banks stronger, more crash proof.

However, strengthening banks isn’t the only issue. Another issue is whether investors are bearing agreed upon risks and receiving commensurate returns.

When a bank is able to invest low interest savings in high risk instruments, and then also benifit from taxpayer funded insurance or bail outs in the event of a failure, the wrong investors are bearing the risks.

People who place their savings in very low return savings accounts or CDs, do so specifically to avoid risk. Let the investors earning high rates of interest take the risk.

[LS]

Well, when you put your money in a bank, you want it to get the highest return possible, with as high a level of safety possible. Of course, the two work against each other.

But no, most investors would have no problem with their deposits going into funds any more than land, government bonds, or whatever. The main thing is that the bank in which those investments reside is SAFE and SECURE, and much more so without GS.

[DoughtyOne]

Thanks so much for your support to this point... I personally apprecaite it...
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