Too Big To Fail?...Even Bigger

The Provocateur ^ | 08/29/2009 | Mike Volpe

[fiscon1]

This bill passed in 1999. Essentially the bill broke down the proverbial wall between a commercial bank and an investment bank. As such, there was no longer a separation. The example I use is that Merrill Lynch and Paine Webber were now able to provide checking accounts. Even today, Etrade has checking accounts. This is the mundane and reasonable part of the bill. The more sophisticated part was that bank could get into investing. Banks could get into loan securitization. All sorts of financial business could be done by the exact same institution. This lead to the second dynamic.

[palmer]

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country

Should read: "now owes more than $1 of every $10 on deposit in this country". They don't hold anything except some treasuries borrowed from the Fed. The only thing keeping the charade going is the false notion that deposits are assets when in fact they are liabilities.

[RushingWater]

Somebody help me out here - was it Barney Frank or Phil Gramm that is most responsible for our economic mess? As I understand it, our banks would have been at an international disadvantage if this deregulation had not occurred.

[fiscon1]

I think that’s way too simplistic. Bank deregulation wasn’t a bad thing per se. It needed to be combined with more careful regulation. It wasn’t Gramm’s fault that all these financial institutions then merged together to create behemoths. Do you think it’s a bad thing that ETrade offers checking accounts? Without this legislation, they wouldn’t be allowed to.