The Alleged Virtues Of Glass-Steagall

I saw this Confluence post linked at Booman (the point appears to be that Riverdaughter dakinkat is being like Jane Hamsher (and her alliance with Grover Norquist) by praising the Cantwell/McCain proposal to reinstate Glass-Steagall, though, to be honest, I am not sure what Booman's point is). It argues in favor of a proposal to reinstate Glass-Steagall. It cites this Bloomberg report:

A one-page proposal gaining traction in Congress could turn back the clock on Wall Street 10 years, forcing the breakup of banks, including Citigroup Inc. Lawmakers in both parties, seeking to prevent future financial crises while soothing public anger over bailouts and bonuses, are turning to an approach that’s both simple and transformative: re-imposing sections of the 1933 Glass-Steagall Act that separated commercial and investment banking.

Of course this sounds good to populists (and is probably good politics), but is it good policy? I addressed this issue a bit last year. The financial meltdown was not caused by the repeal of Glass-Steagall. More . . .

From the Bloomberg article:

Resurrecting Glass-Steagall goes beyond the array of new regulatory powers that President Barack Obama has proposed to fix the financial system. It has also sparked debate among academics, regulators and legislators over whether the Depression-era law could have prevented the crisis of 2008 or might help avoid future ones.

‘No Difference’ -- “If you look at what happened, with or without Glass- Steagall, it would have made no difference,” said H. Rodgin Cohen, chairman of New York-based law firm Sullivan & Cromwell LLP, who represented one side or the other in more than a dozen transactions stemming from the financial crisis last year, including the rescues of Bear Stearns Cos., Fannie Mae, Wachovia Corp., and American International Group Inc.

Cohen and others say the law wouldn’t have saved Bear Stearns or Lehman Brothers Holdings Inc., both of which were pure investment banks, from collapse. And the government would not have been able to enlist JPMorgan Chase & Co. to take on the assets of Bear Stearns or allow Goldman Sachs Group Inc. and Morgan Stanley to become bank holding companies, giving them access to the Federal Reserve’s discount window.

Rather than split up banks, regulators should provide better supervision and require tougher capital requirements, said Cohen, who was also involved on behalf of banking clients in shaping the bill that dismantled parts of Glass-Steagall.

I'll go further. The problem with the government's response to the financial crisis has been its unwillingness to apply the existing regulatory model to it. I speak specifically of Citibank and BoA, two insolvent banks that should be in federal receivership. Reenacting Glass-Steagall will mean nothing to the problem of regulatory capture. Consider the argument in favor of Glass-Steagall:

“What we need is a 21st century Glass-Steagall,” said Gerald Rosenfeld, deputy chairman of Rothschild North America Inc. and a professor of business and law at New York University. Rosenfeld favors regulating commercial banks like public utilities, while giving securities firms and hedge funds more freedom, as long as they adhere to capital guidelines. “The important thing is we have to have a structure that prevents the contagion from spreading when there are catastrophic losses in those riskier businesses,” he said.

In my view, this is a ridiculous analysis. This would allow the same endemic risk to build up, even if it isolates the risk from commercial banks. The idea of prohibiting proprietary trading by commercial AND investment banks makes more sense:

To prevent a domino effect, systemically important financial institutions shouldn’t be allowed to engage in proprietary trading that involved “particularly high risks” or “serious conflicts of interest,” the group said.

That is a proposal I heartily support. Let wealthy investors gamble with their own money. But institutional players, so dependent on government support and, sometimes, largesse, are indeed akin to public utilities. They simply can not be allowed to play in the casino.

Speaking for me only

< Cheney Releases Terrorists: Criticizes Obama For Attacks They Mastermind | The Base >
  • The Online Magazine with Liberal coverage of crime-related political and injustice news

  • Contribute To TalkLeft

  • Display: Sort:
    I am for anything that (5.00 / 1) (#1)
    by Militarytracy on Wed Dec 30, 2009 at 09:55:03 AM EST
    ends FDIC insured institutions from being leverage for investment banking risks.  However they get that done, I'm good.  As for Booman and what he could mean or desires to mean....all I can say is that getting thrown off a of blog can be a badge of honor :)

    And thank you for pointing out (none / 0) (#2)
    by Militarytracy on Wed Dec 30, 2009 at 09:58:33 AM EST
    that the regulations largely needed to clean this mess up are already on the books.  It just needs to be enforced.  Which causes me to wonder why it has not been.

    Well, we know that under the (none / 0) (#10)
    by inclusiveheart on Wed Dec 30, 2009 at 10:20:13 AM EST
    Bush Administration the SEC was instructed to be "customer friendly" where it came to dealing with the companies that they were supposed to be monitoring.

    So customer friendly days (5.00 / 1) (#12)
    by Militarytracy on Wed Dec 30, 2009 at 10:27:35 AM EST
    are over now :)  But they seemingly cannot be made so.  I think we all get the basic idea of why some people are going to try tell us that they can't be.  There is no choice though if we want anything economic to be sane again.

    The group (5.00 / 1) (#3)
    by gyrfalcon on Wed Dec 30, 2009 at 10:03:26 AM EST
    cited in the last graph you quote is, according to the article, "the Group of Thirty, a nonprofit organization made up of former government officials and bankers, including Paul Volcker, a former Fed chairman and head of the president's Economic Recovery Advisory Board."

    Geez, that group ought to have some influence, shouldn't it?

    OTOH, the House Financial Services Committee is now so handicapped, according to this lengthy piece Drum linked to yesterdya from Huffpo, it's hard to see how anything other than nibbling around the edges will ever get through it.

    Everyone who could or would (5.00 / 2) (#4)
    by Militarytracy on Wed Dec 30, 2009 at 10:06:26 AM EST
    actually do something about the whole mess has been deliberately handicapped.

    So much for the all-powerful Barney Frank. . . (none / 0) (#5)
    by andgarden on Wed Dec 30, 2009 at 10:07:24 AM EST
    Sometimes I can't tell which is worse, House leadership or Senate leadership.

    According to the article (5.00 / 1) (#8)
    by gyrfalcon on Wed Dec 30, 2009 at 10:17:36 AM EST
    he's pretty powerful, as is his committee staff, but the House leadership expanded the size of the committee when Dems. took control (before the meltdown, but still) and loaded it up with a huge number of freshman Blue Dogs and others from marginal districts so they could get the big campaign cash infusions from financial interests that go along with Financial Services Committee membership.

    Barney can wring every last drop of useful stuff out of this bunch, but there's only so much he can do.

    It's really pretty disgraceful.  Most of these marginal members apparently don't even bother going to the hearings, just show up en masse when it's time to vote down any sensible regulatory measures.

    Another reason to think it won't be a bad thing when many of these ostensible Dems. get swept out by actual Republicans in 2010.  At that point, one HOPES Pelosi et al will redo the committee membership extensively.


    Well, that's exactly what I mean (none / 0) (#11)
    by andgarden on Wed Dec 30, 2009 at 10:20:59 AM EST
    As he tells it, leadership tied his hands.

    Leadership tied his hands (5.00 / 1) (#13)
    by Militarytracy on Wed Dec 30, 2009 at 10:28:48 AM EST
    He opposed some reforms that Bush (none / 0) (#23)
    by jimakaPPJ on Wed Dec 30, 2009 at 10:54:45 AM EST
    and McCain introduced re Fannie and Freddie so I doubt he will do anything about this.

    The money's too good and he's getting some of it.


    Nonsense (5.00 / 1) (#42)
    by gyrfalcon on Wed Dec 30, 2009 at 12:08:21 PM EST
    Fannie and Freddie are not and never were the problem, and you know it.  Until the recession and resulting massive unemployment, their mortgage default rate was tiny, less than that of banks that lend to the more affluent.  Bush and McCain's "reforms" were an attempt to undermine lending and home ownership in mostly minority communities.  Frank stood firm against that, and good for him.

    Also, Barney Frank has no need of pots and pots of cash.  His seat is entirely secure and he hardly needs to spend vast amounts of money to get reelected.


    Of course there was no problem until there was a (1.00 / 0) (#55)
    by jimakaPPJ on Wed Dec 30, 2009 at 01:51:58 PM EST
    problem. I mean why should we want our government to regulate anything?

    From the New york Times on 9/11/2003.

    The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago


    The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

    Now that didn't bother Barney.

    ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

    Nope, no problem until their was a problem.


    I am honestly surprised (5.00 / 0) (#61)
    by Steve M on Wed Dec 30, 2009 at 05:57:32 PM EST
    that a smart guy like you can't tell the difference between accounting fraud and securitization of bad mortgages.  The Bush Administration could have kept their eye on the books as closely as they wanted to, and it still wouldn't have kept Fannie and Freddie from getting involved in the world of mortgage-backed securities just like everyone else in their orbit.

    It's sort of amusing that the same people who normally mock government regulation and call it broken are so willing to declare that if only this particular Bush proposal had been passed, it surely would have regulated all the problems away!


    "there was...." (1.00 / 0) (#56)
    by jimakaPPJ on Wed Dec 30, 2009 at 01:52:34 PM EST
    Investment Banking .. (5.00 / 1) (#62)
    by Dakinikat on Wed Dec 30, 2009 at 07:53:57 PM EST
    Guess I feel the need to speak up here on a few things.

    First, if any one's read any of my things on regulation, you'd know I support more of a modified Glass Steagall than this particular bill.  What surprised me in the Bloomberg article was how much farther to the left McCain is on this than the Obama administration.

    Second, I have two masters, one in economics, the other in finance and the doctorate (coming in May) is in financial economics. I worked for the FED and I've worked for commercial banks and thrifts as well. I've been teaching at the university level now for about 9 years (grad and undergrad) and that includes macroeconomics as well as money and banking.

    Investment banks are the market makers for SEOS and IPOS and as such, they naturally hold speculative positions.  There is no way you can ban these practices without completely eliminating their ability to their major line of work.  This also extends to their ability to do private placement, manage venture capital, or do securitization and asset-based financing.  They also have to be able to hedge their positions in these assets to manage their risk which involves getting into the same markets.  You can't be a market maker and not have your own trading accounts and positions. For example, they have to make the original market for the IPO companies. Holding the IPO on their balance sheet signals important insider information on the IPO to the market. The pricing and amount offered reflects their assessment of the IPO.  They sell blocks of these things to brokerage firms and can hold a lot of them on their balance sheet per their agreement with IPO company that can be released under varying circumstances.  You simply can't ban this without killing a company's ability to public.

    Glass Steagall (which if you read me, you'd find I support a modified version) recognized there's a big difference between the IPO deal and the essential fiduciary responsibility an institution incurs when it offers deposits.  Safekeeping transaction accounts and accounts used to hold precautionary balances comes with an entirely different set of issues than assets held for speculative purposes or assets generated for same.  

    One of the most disturbing things that happened last fall was the run on MMAs which demonstrated these assets probably have been wrongly categorized by the regulatory scheme we have now. Volcker has been concerned with this for years.

    Our regulatory scheme does not fit our current set of available assets and there is no clear boundary, in some cases, of which regulator owns responsibility for some of these assets. Some of the more complex derivatives were left completely out of any regulator scheme because of Gramm, and others and the refusal of many Republicans to recognize that some forms of regulation are necessary for translucency and effective functioning of a market with high information asymmetry.

    We need to go back to the basic idea that assets that are regarded as deposits cannot be invested in risky assets. This does not mean that there will not be loan losses from economic downturns or mistake underwriting processes.  It means questioning the current pass through roll of an FDI in the securitization process. The mortgages that blew up on the banks, were generally originated by mortgage brokers outside of the bank itself in a subsidiary of the holding company parent.  The banks were expected to be a pass through to securitization either by a Fannie or Freddie or some place else.  They were not expecting to get stuck holding them on their balance sheets. Commercial banks aren't holders of mortgage loans as a general rule anyway.  They're more likely to service the loans and collect the fees rather than hold them on balance sheet.  Because commercial banks have short term liabilities, they stay relatively short on their assets -- car loans, inventory loans, etc.

    Anyway, this subject deserves more than just a cursory discussion.  I think the biggest problem we have right now is the confusion over what Investment Banking and the shadow banking industry is and what it does, and why it shouldn't be any where near a holding company that holds savings and checking accounts, and possibly even money market accounts. What I support is a regulatory structure that continues to recognize the distinct natures of speculative investments and deposits held for transactions or precautionary reasons.

    Thanks for your patience.

    I think we all know (1.00 / 0) (#7)
    by jimakaPPJ on Wed Dec 30, 2009 at 10:15:14 AM EST
    that Chinese Firewalls always crumble when money is involved.

    Cohen and S&C represent (none / 0) (#6)
    by dk on Wed Dec 30, 2009 at 10:15:07 AM EST
    many of the bankers and banks who committed the worst abuses.  So, he may have a bit of a conflict of interest here.

    I'm not saying he is definitely wrong.  However, some more impartial sources would probably have a greater impact in support of your argument, IMO.

    Judge the argument not the arguer (5.00 / 1) (#9)
    by Big Tent Democrat on Wed Dec 30, 2009 at 10:18:30 AM EST
    Is Cohen wrong on the facts he states?

    Surely you know Lehman Brothers and Bear Stearns were pure investment banks. Glass-Steagall did not effect them, except to create new competitors in the investment banking business.


    But as I understand it, without the (5.00 / 2) (#17)
    by inclusiveheart on Wed Dec 30, 2009 at 10:37:32 AM EST
    fuel generated by the more conservative financial institutions, neither firms' collapse would have been as huge - and the ability to fuel - or in this case fund - those outrageous risks they were taking - the opportunity to funnel conservatively invested money into these high risk ventures was in part created by the repeal of Glass Steagall.

    I do not believe for a second that Citigroup would have had the ability to generate the losses they have without having had the security of their commercial banking arm.  They would not have had the extraordinary amount of betting money - they would not have been perceived (which is important) to be able to make good on a bad debt without that kind of backing.


    Dunno about that (none / 0) (#22)
    by gyrfalcon on Wed Dec 30, 2009 at 10:52:22 AM EST
    Lehman and Bear managed it without a commercial banking arm.

    You would be incorrect imo (none / 0) (#28)
    by Big Tent Democrat on Wed Dec 30, 2009 at 11:07:18 AM EST
    Commercial banks could have invested in the risky assets (hell, most of the bad assets are mortgages) Glass-Steagall or not.

    I don't know if that is true. (5.00 / 1) (#34)
    by inclusiveheart on Wed Dec 30, 2009 at 11:27:14 AM EST
    According to a summary by the Congressional Research Service of the Library of Congress:

    "In the nineteenth and early twentieth centuries, bankers and brokers were sometimes indistinguishable. Then, in the Great Depression after 1929, Congress examined the mixing of the "commercial" and "investment" banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions' securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act.[8]

    IIRC commercial banks under Glass Steagall were required by law to steer clear of risky investments - including making bad bets on mortgages that clearly would never be repaid.


    Mortgages? (none / 0) (#39)
    by Big Tent Democrat on Wed Dec 30, 2009 at 12:03:26 PM EST
    Come now.

    Buying bundled mortgages and feeding (none / 0) (#41)
    by Militarytracy on Wed Dec 30, 2009 at 12:08:11 PM EST
    the demand to create more mortgages at any cost only looking at the short term had nothing to do with them?

    Well, he's making an argument (none / 0) (#14)
    by dk on Wed Dec 30, 2009 at 10:29:57 AM EST
    more than stating facts.  I just happen to think it's easier to judge an argument when then the person making the argument doesn't have as much skin in the game.  YMMV.

    My mileage completely varies (none / 0) (#15)
    by Big Tent Democrat on Wed Dec 30, 2009 at 10:34:12 AM EST
    An argument is presented to persuade.

    whether someone has "skin in the game" or not, if they take an advocacy role, they are not going to provide you with "just the facts."

    You touch on, imo, one of the fundamental fallacies of disclosures and conflicts.

    If a person presents themselves as an objective observer, then by all means, we need to know there is no skin in the game. But if a person presents themselves as advocating one side or the other of an issue, then, by definition, you need to understand that you are being presented advocacy, not an objective judgment.

    Believe me, Volcker may not have "skin in the game" (or he may, I do not know), but he has a point of view and when he argues for it, he presents the best case possible for his point of view.


    I'm not even sure (none / 0) (#24)
    by dk on Wed Dec 30, 2009 at 11:04:11 AM EST
    what side I'm on.  My point was only that Cohen is currently making his money representing the people who got us into this mess.  To me, that doesn't make him a credible source if we're trying to get to the full recitation of the facts.  His obligation is to make arguments that suit his clients' interests.  That's perfectly fine, but it is what it is.

    Again, it's not to say that he's wrong or that he's right, but I also don't think it has that much of an effect in trying to persuade people.


    A full recitation of the facts? (none / 0) (#29)
    by Big Tent Democrat on Wed Dec 30, 2009 at 11:08:28 AM EST
    Well, you won't get that from anyone is my point.

    Advocates advocate. Whether they have "skin in the game" or not.


    My point too (none / 0) (#32)
    by dk on Wed Dec 30, 2009 at 11:13:18 AM EST
    My initial comment was just to point out who Cohen is presently advocating for.

    Cohen (and BTD) (none / 0) (#20)
    by gyrfalcon on Wed Dec 30, 2009 at 10:50:41 AM EST
    are hardly alone in this opinion.  Hit The Goog.

    So why was it repealed? (none / 0) (#16)
    by Dadler on Wed Dec 30, 2009 at 10:36:40 AM EST
    There was a reason, and the reason was so more people could make more money in more shady ways with less government oversight. That's the only reason laws like that are EVER overturned, especially in our return to the Gilded Age.

    What is the point of trying to diminish Glass-Stegall? To absolve the Clinton Administration of responsibility?  The real story about those days was that those supposedly "in charge" at the time chose to ignore, slander and marginalize Brooksely Born, who was the only person at the time warning of this looming disaster.

    That will be the real legacy of those heady times of "growing the economy" -- that we knew it was a disaster waiting to happen, but we chose to throw overboard those wise folks who knew better.

    Let me add that (5.00 / 1) (#19)
    by Big Tent Democrat on Wed Dec 30, 2009 at 10:49:47 AM EST
    Brooksley Born has never spoken on Glass-Steagall.

    People confuse the CFTC wth the Glass Steagall issues:

    "The 2009 John F. Kennedy Profile in Courage Award was given to Brooksley Born for her former role as chair of the Commodity Futures Trading Commission (CFTC) and her efforts to bring OTC (over the counter) financial derivatives.

    The award citation read: "In the booming economic climate of the 1990's, Born battled other regulators in the Clinton Administration, skeptical members of Congress and lobbyists over the regulation of derivatives, warning that unregulated financial contracts such as credit default swaps could pose grave dangers to the economy. Her efforts brought fierce opposition from Wall Street and from Administration officials who believed deregulation was essential to the extraordinary economic growth that was then in full bloom. Her adversaries eventually passed legislation prohibiting the CFTC from any oversight of financial derivatives during her term."

    The law in question was the Commodities Futures Trading Act. I am completely in favor of repealing it and regulating derivatives under the CFTC.

    Clinton made a grave mistake allowing it to be inserted into a bill. He has said as much.

    Summers, Geithner and Rubin have not admitted their mistakes as far as I know.

    But to make a larger point, the reforms I support go further than that. I would proprietary trading by both commercial and investment banks.


    Commercial banks are already prohibited from (none / 0) (#27)
    by Elporton on Wed Dec 30, 2009 at 11:06:36 AM EST
    trading for their own accounts.  But you propose extending that prohibition to investment banks as well?

    I do (5.00 / 1) (#30)
    by Big Tent Democrat on Wed Dec 30, 2009 at 11:09:06 AM EST
    That may be a worthy goal but (5.00 / 1) (#33)
    by Elporton on Wed Dec 30, 2009 at 11:17:46 AM EST
    it seems like a political longshot, especailly given the lobbying strength of the industry.  Also, that's a fundamental part of their business.

    As an alternative, wouldn't we be better off reducing the leverage limits on investment banks back to 8:1 vs. the current 33:1, and disallowing the ownership of an investment bank by a holding company that also owns a commercial bank?


    I could do either (none / 0) (#43)
    by Militarytracy on Wed Dec 30, 2009 at 12:14:05 PM EST
    What are my chances of getting either?

    Virtually nil on prohibiting investment banks from (none / 0) (#45)
    by Elporton on Wed Dec 30, 2009 at 12:26:11 PM EST
    trading for their own account.  That's what they do.

    So the trick is to keep that acitivity segregated from the commercial bank whose deposits are insured by the FDIC, meaning the taxpayers when the fund is bankrupt as it is now.

    If the legislation currently being proposed is based on the principles of the original Glass-Stegall Act, then we have a pretty decent shot at separating commercial and investment banking, since a bank holding company could be prohibited from owning an investment bank.


    That's not what they USED to do (none / 0) (#48)
    by Big Tent Democrat on Wed Dec 30, 2009 at 12:43:07 PM EST
    They used to do capital formation.

    Actually investment banks have always been able to (none / 0) (#50)
    by Elporton on Wed Dec 30, 2009 at 12:57:15 PM EST
    trade for their own accounts.  And since the market crash of the '30s, investment banks have gone out of business because of trading losses.  

    The difference now is the amount of leverage investment banks can take on, allowing these firms to become gigantic compared to their predecessors and permitting much higher trading volumes with borrowed money.


    you write (none / 0) (#18)
    by Big Tent Democrat on Wed Dec 30, 2009 at 10:45:20 AM EST
    "the reason was so more people could make more money in more shady ways with less government oversight"

    If you can explain how Glass-Steagall forward that, especially the "less government oversight" part, I am all ears.

    It's simply false.


    OK, I shall try (none / 0) (#35)
    by Dadler on Wed Dec 30, 2009 at 11:28:46 AM EST

    Listen, I respect your intellect and passion for what you write, but this is far from a settled issue, economics is not a hard science. It is a soft and social science based on nothing more than what people think -- the "thoughts" of those in power, of course, counting much more than of those not.

    This is not economics (none / 0) (#44)
    by gyrfalcon on Wed Dec 30, 2009 at 12:14:37 PM EST
    This is about the practices of the financial industry.  Those practices obviously have an effect on the economy, but they're two different things.  Being an economist does not make you an expert in the way the financial industry works any more than it makes you an expert on the auto industry.

    From your link (none / 0) (#49)
    by Big Tent Democrat on Wed Dec 30, 2009 at 12:45:35 PM EST
    The separation of commercial and investment banks did not cure this problem:

    "Congress was concerned that commercial banks in general and member banks of the Federal Reserve System in particular had both aggravated and been damaged by stock market decline partly because of their direct and indirect involvement in the trading and ownership of speculative securities."

    The prohibition on commercial banks engaging in speculative trading on their own accounts is what did that.

    I am proposing banning such practices by investment banks.


    Just a correction (none / 0) (#21)
    by TeresaInSnow2 on Wed Dec 30, 2009 at 10:51:31 AM EST
    That post you linked to at the Confluence was by Dakinikat, who happens to have some kind of advanced degree in economics (not sure if it's a Master's or doctorate) and teaches economics at a Louisiana college.  Riverdaughter did not write the post and most likely had nothing to do with its writing.  Riverdaughter has actually gotten perturbed (shall we say) with Jane Hamsher over her affiliation with Norquist.  There are plenty of disgruntled Democrats who would be happy to work with Hamsher.  Going all the way over to Norquist was a bit over the top.

    Thanks (none / 0) (#26)
    by Big Tent Democrat on Wed Dec 30, 2009 at 11:06:04 AM EST
    I corrected.

    Ah, but see in Boomanland (none / 0) (#36)
    by Militarytracy on Wed Dec 30, 2009 at 11:38:15 AM EST
    Wanting something from this administration that it does not want to give to us and advocating for that via blogging puts you in the same boat with Hamsher and Grover.

    I agree with Armando (none / 0) (#25)
    by seabe on Wed Dec 30, 2009 at 11:06:00 AM EST
    Over at FDL not too long ago (maybe 2-3 weeks ago) they talked about this same thing, and then I said "Well I think Glass-Stegal should be reinstated, but how does that prevent a crisis like this again?"

    I speak specifically of Citibank and BoA, two insolvent banks that should be in federal receivership.

    See here: http://economicsofcontempt.blogspot.com/2009/05/kc-fed-president-hoenig-on.html

    Hoenig attempts to deal with the issues regarding this, but doesn't really succeed.

    Agree (none / 0) (#31)
    by Big Tent Democrat on Wed Dec 30, 2009 at 11:11:16 AM EST
    But I disagree with the linked article obviously.

    Specifics? (none / 0) (#51)
    by seabe on Wed Dec 30, 2009 at 12:57:34 PM EST
    Well obviously, but which part? Continental Illinois being a bad model? That there are many legal problems for receivership of said institutions? etc.

    already killed (none / 0) (#37)
    by jedimom on Wed Dec 30, 2009 at 11:52:14 AM EST
    WOTS is Jamie Dimon killed it already, they are waaaay behind the curve....not sure if video still works, post is from November

    Jamie is now working on killing the UK Bank Bonus Tax

    since Jamie is so good at his job I say we go ahead and make him Tres Secty

    dak (none / 0) (#38)
    by jedimom on Wed Dec 30, 2009 at 11:52:36 AM EST
    and dak teaches economics IIRC..she knows of what she speaks tho we do not always agree, lol

    Yep (none / 0) (#46)
    by cawaltz on Wed Dec 30, 2009 at 12:31:59 PM EST
    dak is wicked smart. I disagreed with her on Pigou taxes but I think she is probably closer to the mark on Glass Steagal. Anything that keeps the giants manageable is okay by me though.

    Remember the Tech bubble? (none / 0) (#40)
    by Radix on Wed Dec 30, 2009 at 12:08:00 PM EST
    Glass-Steagall would have prevented that.

    you're joking right? (none / 0) (#47)
    by Big Tent Democrat on Wed Dec 30, 2009 at 12:42:11 PM EST
    Nope (none / 0) (#52)
    by Radix on Wed Dec 30, 2009 at 12:58:21 PM EST
    Glass Steagall was in place then (5.00 / 1) (#57)
    by Big Tent Democrat on Wed Dec 30, 2009 at 02:02:37 PM EST
    I'm curious. How so? (none / 0) (#53)
    by Elporton on Wed Dec 30, 2009 at 01:05:17 PM EST
    Essentially there was a similar set of (none / 0) (#54)
    by Radix on Wed Dec 30, 2009 at 01:18:04 PM EST
    conditions during the tech bubble as we had during the real estate bubble. During the tech bubble investment banks were, essentially, throwing money at anything remotely using computers. Then these same firms turned over this newly formed companies shares to their investment branch. The investment branches then hawked these stocks to their customers. There's a huge conflict of interest here, from what I can see.

    There was and is and will be (none / 0) (#58)
    by jimakaPPJ on Wed Dec 30, 2009 at 02:04:04 PM EST
    a huge conflict of interest that so-called Chinese Firewalls won't fix.

    The NASDAQ, when the Internet bubble burst, ran off 50% between around March 2000 and March 2001.

    And what did we have next? The housing and sub prime mortgage bubble followed by an oil price speculative bubble.

    But no problems here. Move along, nothing to see.


    Perhaps, the facct that Glass might not (none / 0) (#65)
    by Radix on Thu Dec 31, 2009 at 12:02:25 PM EST
    address all issues doesn't mean it shouldn't be used. Simply look at what's not addressed and add those fixes in call it Glass-Steagal 2 if you like.

    The presence of Glass-Stegall certainly (none / 0) (#59)
    by Elporton on Wed Dec 30, 2009 at 02:08:31 PM EST
    would have prevented the unsafe activities you describe from affecting a commercial bank owned by the same holding company that owned the offending investment bank/brokerage house (since that ownership would be prohibited), but I'm struggling to see how it might have prevented the creation of the bubble in the first place.  Perhaps I'm missing something though.

    It's akin to a fire, the more fuel it has the (none / 0) (#64)
    by Radix on Thu Dec 31, 2009 at 12:00:20 PM EST
    faster and larger it grows. The fewer the institutions that can participate in these activities, the smaller the bubble, the slower it grows.

    If Glass-Steagal was such a legislative groaner, (none / 0) (#60)
    by tokin librul on Wed Dec 30, 2009 at 03:51:28 PM EST
    why did Phil Gramm, et al, move heaven and earth to eliminate it?

    And, (none / 0) (#63)
    by NYShooter on Wed Dec 30, 2009 at 09:04:40 PM EST
    doesn't an investment bank (under current regs) use  "de facto" insider information by doing trades for clients; and being armed with this proprietary information hold an unfair competitive edge by sharing that information with it's own trading desk?