Actually, reinstating Glass Steagall wouldn't address very much of the 21st century US economy at all.
I agree that stronger, deeper and broader regulation of all aspects of all financial industries (banking, equity trading, insurance) needs to be in place, but Glass-Stegall is a solution for early-20th Century economic institutions tha…
Actually, reinstating Glass Steagall wouldn't address very much of the 21st century US economy at all.
I agree that stronger, deeper and broader regulation of all aspects of all financial industries (banking, equity trading, insurance) needs to be in place, but Glass-Stegall is a solution for early-20th Century economic institutions that lost accountability.
In the first 2/3 of the 20th century, retail bankers kept their loans and made profit by managing their margin - that is, the difference between interest rates on loans and interest rates on savings.
Even with Glass-Steagall, banks could, and did, sell parts of their mortgage loan portfolios to other banks or investment managers. But today, it's a rare bank that keeps ownership of the mortgage loan it initiates.
Today, there's no need for a firewall, since retail banks no longer have much in the way of loan portfolios anyway. I know becasue I helped sell a large regional bank's entire mortgage portfolio years before Glass-Stegall was repealed.
I'm not arguing against effective regulation, just against regulations like Glass-Stedall that had outlived their usefulness because bankers and equity traders had already figured out how to circumvent them.
Most serious economists agree that had it been in effect in 2008, it would have had little if any effect on the 2008 Great Recession.
This reminds me of a similar situation with the Fairness Doctrine. Reagan’s dropping it, combined with dropping limitations on concentration of control of media, had a large role in our current problems. Simply reinstating it would not be enough, because media have changed and the related problems also need addressing.
What 21st Century financial industry problem would Glass-Steagall solve? Identify in your answer how regulations designed around financial institutions of 1933 address abuses by the financial institutions of 2022.
Glass-Steagall was largely irrelevant when it was repealed becasue bankers and brokers had already figured work-arounds to it.
Glass-Steagall created "walls" between retail and commercial banking and banking and equity trading. It focused on banking's internal processes.
Consider a better way to regulate that actually addresses concentration of wealth instead of compromising by limiting regulation to financial institutions' internal processes.
Your peremptory tone is not well received. As I already said, Glass-Steagall, or an updated version thereof, would prevent ordinary deposits from being invested in the derivatives market, which is (as a Japanese government minister once said) financial AIDS.
I'm not going to sign up at your link, but the "Oxford languages" definition of peremptory that comes up with a Google search fits your earlier objectionable behavior:
"(especially of a person's manner or actions) insisting on immediate attention or obedience, especially in a brusquely imperious way."
Is challenging you to support your assertions (or tulsi Gabbard's assertions that you apparently support) "objectionable behavior"?
For what it's worth, I'm very comfortable calling out Tulsi Gabbard's shallow populism and flirtations with Russia. I worry about anyone who takes her seriously.
John - can you actually back up Gabbard's suggestion that Glass-Steagall would be useful in the 21st century, taking into account the differences between 1933 and 2022 in the banking and stock trading industries? Here's another helpful article.
Steve, your position is based on the dubious assumption that the markets simply are what they are, and we have to just deal with it.
My reply: The markets and existing financial structure are a brain-dead abomination. Periodic crises are built into the system, requiring ever-larger bailouts, threatening an implosion of the value of the dollar. Moral hazard is built into the system, going back to the Clinton-era bailouts of 1996.
Beyond Glass-Steagall, the cancerous derivatives markets need to be dried out:
Freeze everything, put it all through an orderly bankruptcy; most of it will be wiped out.
Moving forward, returning to a gold reserve standard is an obvious option, but we need to drive a stake through the heart of the current floating-exchange-rates system.
Returning to Glass-Steagall is an insufficient-but-necessary first step.
I love that there is such an amazingly wide pool of experience in the followers of LFAA. Interesting to read your comment, Steve, to be reminded that many of the 'vintage' regulations, whether still in force or not, have little to no applicability due to change over time, especially after we entered into the digital era. It makes me wonder what, if any, efforts take place to keep them relevant with the pace of change we live with now.
It's not just about loan portfolios, it's about prohibiting commercial banks from investing your savings account in (for example) the derivatives market.
Other laws already prevent investment of savings in low-grade securities and junk bonds. That set of issues is already addressed by requiring retail banks - and commercial banks, much to the chagrin Goldman Sachs - to meet stress tests by having diversified portfolios that avoid the kinds of concentrations many held in 2008. Glass Steagall didn't address those; it presumed that banks' income portfolios were largely in their own loans. But that's not where banks make money any more. Most loans are sold to mortgage bankers, then securitized and sold in the derivatives market, which is also now more regulated than in 2008.
Glass Stegall also did not prevent banks even in the early 1980s from selling their mortgage portfolios to brokers who could bundle then securitize them into derivatives. If you want a good study on the topic of the legal and financial aspects of derivatives, I recommend "Capital Markets, Derivatives and the Law," by Ala N. Rechtschaffen (Oxford Univ. Press, 2009). Many of the ills of unregulated derivatives have already been addressed in Dodd-Frank and other laws passed in the wake of 2008.
Right now, they pay almost nothing on deposits precisely becasue deposits can't be invested in high-risk/high-yield assets and still be insured by FDIC.
What should banks do to make enough money to pay interest on deposits?
What background do you have in how 21st century banking works?
Actually, reinstating Glass Steagall wouldn't address very much of the 21st century US economy at all.
I agree that stronger, deeper and broader regulation of all aspects of all financial industries (banking, equity trading, insurance) needs to be in place, but Glass-Stegall is a solution for early-20th Century economic institutions that lost accountability.
In the first 2/3 of the 20th century, retail bankers kept their loans and made profit by managing their margin - that is, the difference between interest rates on loans and interest rates on savings.
Even with Glass-Steagall, banks could, and did, sell parts of their mortgage loan portfolios to other banks or investment managers. But today, it's a rare bank that keeps ownership of the mortgage loan it initiates.
Today, there's no need for a firewall, since retail banks no longer have much in the way of loan portfolios anyway. I know becasue I helped sell a large regional bank's entire mortgage portfolio years before Glass-Stegall was repealed.
I'm not arguing against effective regulation, just against regulations like Glass-Stedall that had outlived their usefulness because bankers and equity traders had already figured out how to circumvent them.
Most serious economists agree that had it been in effect in 2008, it would have had little if any effect on the 2008 Great Recession.
This reminds me of a similar situation with the Fairness Doctrine. Reagan’s dropping it, combined with dropping limitations on concentration of control of media, had a large role in our current problems. Simply reinstating it would not be enough, because media have changed and the related problems also need addressing.
Perhaps not enough, but (as with Glass-Steagall) a necessary step in the right direction.
What 21st Century financial industry problem would Glass-Steagall solve? Identify in your answer how regulations designed around financial institutions of 1933 address abuses by the financial institutions of 2022.
Glass-Steagall was largely irrelevant when it was repealed becasue bankers and brokers had already figured work-arounds to it.
Glass-Steagall created "walls" between retail and commercial banking and banking and equity trading. It focused on banking's internal processes.
Consider a better way to regulate that actually addresses concentration of wealth instead of compromising by limiting regulation to financial institutions' internal processes.
Your peremptory tone is not well received. As I already said, Glass-Steagall, or an updated version thereof, would prevent ordinary deposits from being invested in the derivatives market, which is (as a Japanese government minister once said) financial AIDS.
Peremptory?
Isn't that what Tulsi is?
Self confident based on shallow (or no) research?
You might want to look up "peremptory" in a dictionary.
I did.
Webster's Unabridged,
https://unabridged.merriam-webster.com/unabridged/peremptory
Tell me what I got wrong in sense 1a, 2a, 2b, 3a (1), 3a (2), or 4?
Am I being peremptory by asking?
Or are you being peremptory by suggesting that I hadn't already?
I'm not going to sign up at your link, but the "Oxford languages" definition of peremptory that comes up with a Google search fits your earlier objectionable behavior:
"(especially of a person's manner or actions) insisting on immediate attention or obedience, especially in a brusquely imperious way."
Is challenging you to support your assertions (or tulsi Gabbard's assertions that you apparently support) "objectionable behavior"?
For what it's worth, I'm very comfortable calling out Tulsi Gabbard's shallow populism and flirtations with Russia. I worry about anyone who takes her seriously.
John - can you actually back up Gabbard's suggestion that Glass-Steagall would be useful in the 21st century, taking into account the differences between 1933 and 2022 in the banking and stock trading industries? Here's another helpful article.
https://www.federalreservehistory.org/essays/glass-steagall-act
Steve, your position is based on the dubious assumption that the markets simply are what they are, and we have to just deal with it.
My reply: The markets and existing financial structure are a brain-dead abomination. Periodic crises are built into the system, requiring ever-larger bailouts, threatening an implosion of the value of the dollar. Moral hazard is built into the system, going back to the Clinton-era bailouts of 1996.
Beyond Glass-Steagall, the cancerous derivatives markets need to be dried out:
Freeze everything, put it all through an orderly bankruptcy; most of it will be wiped out.
Moving forward, returning to a gold reserve standard is an obvious option, but we need to drive a stake through the heart of the current floating-exchange-rates system.
Returning to Glass-Steagall is an insufficient-but-necessary first step.
I like your tone. You’re teaching us today, and I appreciate it.
I love that there is such an amazingly wide pool of experience in the followers of LFAA. Interesting to read your comment, Steve, to be reminded that many of the 'vintage' regulations, whether still in force or not, have little to no applicability due to change over time, especially after we entered into the digital era. It makes me wonder what, if any, efforts take place to keep them relevant with the pace of change we live with now.
❤️
Natalie -
Here's a good primer.
https://www.investopedia.com/ask/answers/063015/what-are-major-laws-acts-regulating-financial-institutions-were-created-response-2008-financial.asp
Another excellent history lesson, and one that isn't often heard.
It's not just about loan portfolios, it's about prohibiting commercial banks from investing your savings account in (for example) the derivatives market.
Other laws already prevent investment of savings in low-grade securities and junk bonds. That set of issues is already addressed by requiring retail banks - and commercial banks, much to the chagrin Goldman Sachs - to meet stress tests by having diversified portfolios that avoid the kinds of concentrations many held in 2008. Glass Steagall didn't address those; it presumed that banks' income portfolios were largely in their own loans. But that's not where banks make money any more. Most loans are sold to mortgage bankers, then securitized and sold in the derivatives market, which is also now more regulated than in 2008.
Glass Stegall also did not prevent banks even in the early 1980s from selling their mortgage portfolios to brokers who could bundle then securitize them into derivatives. If you want a good study on the topic of the legal and financial aspects of derivatives, I recommend "Capital Markets, Derivatives and the Law," by Ala N. Rechtschaffen (Oxford Univ. Press, 2009). Many of the ills of unregulated derivatives have already been addressed in Dodd-Frank and other laws passed in the wake of 2008.
Methinks he doth protest too much...
Banks should be prohibited from INVESTING ordinary deposits (not talking about bundling mortgages).
John -
Right now, they pay almost nothing on deposits precisely becasue deposits can't be invested in high-risk/high-yield assets and still be insured by FDIC.
What should banks do to make enough money to pay interest on deposits?
What background do you have in how 21st century banking works?