“A quick look at the Great Depression makes it look like we are doing it all over again. The stock market crash destroyed the entire banking system and our real estate market. So the separations were put into place to keep one crash from having an affect on so much of our economy.”
The stock market was just an indicator, it didnt ‘cause’ the great depression. Three things caused the great depression:
1. Raising tarriffs (smoot hawley)
2. Tight monetary policy, and a subsequent failure to stop a credit collapse (what we are trying to forestall with this action)
3. raising taxes (1932 revenue bill)
there is absolutely NOTHING that would have been improved in those areas if you forced all commercial banks and investment houses to stay separate. nothing. It wouldnt have done a lick of good. and if that law was still in place would it have stopped the current mess? Nope, not if the housing bubble, fed by Fannie mae and CMOs went on as it did, outside the purview of banks, etc. (Banks didnt cause this mess, remember, the mortgage market and housing bubble is the root of the problem). All that would be different would be the commercial banks would be BARRED FROM RESCUSING THE INVESTMENT BANKS CAUGHT IN THIS! So Bank of America saving a wall stree firm would have not happened, and the mess would be even worse!
“Take a good look at what Insurance companies are doing, you will see that since the deregulation, they now own broker dealers and investment banks.”
“ Part of their meltdown was that not only do they insure against loss, but they actually own a lot of the debt too.”
My point is: Why forbid combination at all? The real problem here is over-leverage and mis-measurement of risks. You are pointing to correlated risks, but these are different arms and types of business and not many are really in both.
But a more diverse set of assets can help protect the downside in one area with assets in another area. The regulations HARMED the abilities of companies to engage in diversification. If the companies chose to be in one correlated market only, that should not be laid at the foot of this aspect of deregulation.
“So they lose because they have to pay claims, but they lose more because they own mortgages. Their own portfolios become less diverse and more risky. This is what the deregulation has allowed.”
This is backwards, since the deregulation allows MORE diverse holdings. I think we are in agreement that diverse holdings reduces risks overall.
Remember, this regulation is not forcing any of this mixing, it merely stopped artificial walls between types of banks. Those walls do not exist in other countries and the US financial sector would be a backwater if we continued to disallow these common-sense combinations in financial firms.
The goal of the 1930s regulation, put in place in another era, was to stop banks from engaging in excessive risk. My point is that it was an antiquated and couterproductive way to do that. There are far better ways to ensure that in a modern financial market.
In the end, it would be far better to have unified regulation of financial companies than force artificial barriers to combined firms. Those regulations will indeed require certain amounts of financial stability and guarantees on assets.
Fools and scoundrels like you keep trying to tiptoe around that little problem.
You are not so stupid as to believe this oily condescending tripe.
The problem right now is that all the bubbles we have are not independent uncorrelated things where a drop in one is independent of other things going on. These bubbles are all pumped up by the same system of leverage and tightly interlocked and correlated through the enormous quantity of derivatives designed to do exactly that. That is why it is the system that is collapsing and not just individual sectors or banks or hedge funds that are collapsing.
Either you are as smart as the pompous ass you pretend to be and you already knew that so why are you lying to everyone? Or you are just a fool? I am happy to puncture that smug greasy exterior either way.
“there is absolutely NOTHING that would have been improved in those areas if you forced all commercial banks and investment houses to stay separate. nothing.”
I disagree. One of the things that led to the banking system collapse at that time was their money was tied up in a stock market and was forced down by short sellers. This is one of the things learned when I studied for the series 7 licensing. They were allowed to loan as much money as they pleased for stock market trading. This was capped after the crash.
I believe in diversification, but the unwinding of the regulation allowed banks and insurance companies to do whatever they wanted. This is why insurance companies owned real estate as well as insured real estate. This puts more assets into one class instead of multiple classes. It also allowed Bear Stearns to claim that mortgage backed securities were of a higher grade than they actually were. They not only sold the investment, but they were too close to the ones who gave the investments the rating.
The real culprit here was the giving of unrealistic loans to people who didn’t deserve them. But there would have been less of it because those who were writing them would not have been so easily able to dump them off on investors.