I also call total BS.
The Repeal of Glass-Steagall, introduced and pushed by the Republicans and passed by a bipartisan majority and signed by Clinton allowed banks to take on more risk. That one post Glass-Steagall bank has acquired another post Glass-Steagall bank for pennies on the dollar in no way implies that repeal of Glass-Steagall mitigated the crisis.
The lowering of reserve rates to historic lows and the exemption of many deposits from reserve requirements allowed banks to become more leveraged. I’m not sure when this happened or what administration is at fault. But clearly this is a form of “deregulation” that helped bring on the crisis.
The lowering of reserve rates to historic lows and the exemption of many deposits from reserve requirements allowed banks to become more leveraged. I’m not sure when this happened or what administration is at fault. But clearly this is a form of “deregulation” that helped bring on the crisis
Blame the derivative called "credit default swaps" which allowed capital to be freed up that was once mandated to be kept in reserve against losses on loans etc. This capital was then deployed to make the lousy bets the taxpayer is now supposed to make good on.
Credit default swaps should have been clamped down on ages ago
"Free markets" are bs when the taxpayer is forced to bail out participants making high stakes bets. Lehman made bets on borrowed money using 30 to 1 leverage
“introduced and pushed by the Republicans and passed by a bipartisan majority”
I Call BS...
Glass-Steagal was the brain-child of ROBERT RUBIN, Robert Reich, and $200 Million in CITI money thrown around to allow the Citi/Smith-Barney merger...
RUBIN was rewarded with a board seat at CITI for his efforts, and later became Chairman of the Executive Board.
This was a DEMOCRAT creation, and CITI used tons of money to buy whoever they needed to, in getting it done.
Excerpt from http://www.newsweek.com/id/161199
JPMorgan bankers were trying to get their heads around a question as old as banking itself: how do you mitigate your risk when you loan money to someone? By the mid-’90s, JPMorgan’s books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad. But what if JPMorgan could create a device that would protect it if those loans defaulted, and free up that capital?
What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a “credit default swap,” and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices. While the concept had been floating around the markets for a couple of years, JPMorgan was the first bank to make a big bet on credit default swaps. It built up a “swaps” desk in the mid-’90s and hired young math and science grads from schools like MIT and Cambridge to create a market for the complex instruments. Within a few years, the credit default swap (CDS) became the hot financial instrument, the safest way to parse out risk while maintaining a steady return. “I’ve known people who worked on the Manhattan Project,” says Mark Brickell, who at the time was a 40-year-old managing director at JPMorgan. “And for those of us on that trip, there was the same kind of feeling of being present at the creation of something incredibly important.”
Like Robert Oppenheimer and his team of nuclear physicists in the 1940s, Brickell and his JPMorgan colleagues didn’t realize they were creating a monster.
Glass-Steagall was a stupid law, and the only problem with the partial repeal is that it didn't go far enough and included even more new regulations. To say that there is something economically dangerous for the same financial institution to be able to offer financial services like insurance is as silly as saying that it hurts the economy for supermarkets to sell meat. Sure, their competition (brokerage houses or butcher shops) might not like it, but the additional competition has done wonders for the consumer.
Foreign banks were already allowed to engage in the activities Glass-Steagall prohibited; the only thing that law did was put US companies (especially smaller institutions) at a disadvantage.
The lowering of reserve rates to historic lows and the exemption of many deposits from reserve requirements allowed banks to become more leveraged.
Do you even know what Glass-Steagall did? It had nothing to do with this; it just let US consumer banks offer other financial services like insurance and commercial/investment banking.
From a practical standpoint, the repeal could not possibly have ANY impact on the current situation, since the activities it prohibited were already happening through other means (Travelers had already bought out Citibank, proving that any large bank with sufficient political clout could just get a waiver). The biggest consequence of the law was the merger of Norwest and Wells Fargo, and that institution is probably the strongest and most stable one the United States has right now (despite attempts by the Treasury to put in in the same boat as the less-well-managed banks by forcing it to accept government loans it doesn't want).
The only part of Gramm-Leach-Bliley that contributed in any way to the current economic difficulty was the strengthening of the anti-redlining provisions of the Community Reinvestment Act, and (for those of you who seem to be clue challenged) that is an example of more regulation, not less. EXCESSIVE REGULATION (and the very existence of GSEs like Fannie Mae, whose implied government backing resulted in junk bonds being rated AAA) IS WHAT CAUSED THIS PROBLEM.
You socialists don't seem to grasp that you can't fix this problem, because you caused it.