Posted on 11/12/2009 2:30:54 PM PST by DBlake
10 Years Later, Looking at Repeal of Glass-Steagall...
It was a freaking disaster. One of Gramm’s big mistakes. Caused many more problems than it solved. We are living to rue the day.
ABSOLUTELY!!! I was dumbstruck when it passed. In fact, the passage of this bill damns the Republicans (in part) as participants to the bank failure.
ABSOLUTELY!!! I was dumbstruck when it passed. In fact, the passage of this bill damns the Republicans (in part) as participants to the bank failure.
oops...sorry about the double post:-(
G-L-B was, like most of what comes out of the Regress, a political payoff. Had it simply stayed focused on modernisation of the banking industry (which DEFINITELY needed to be addressed), it might have been worthwhile. As written, it's a bloody disaster...as the history of its abuse by the industry has shown us.
I remember the banking lobby telling Congress that the banks of the 1980’s are not the same bankers of the 1920’s. They assured the American people that government regs separating savings banks from investment banks are no longer necessary because the lessons of the 1920’s are well ingrained in the CEO’s and they will not repeat the same mistakes that caused the financial meltdown in 1929 which triggered a severe Depression in the US.
Well, when he retired from the Senate, Gramm went to work for a huge banking conglomerate, USB, and is very well paid (rumored in the millions). I generally like Phil Gramm, but I think this was a mistake.
Repeal GLB and CRA!!!
Yeah, but didn’t the Fed contract the money supply to begin with?
No.
“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. YOU’RE RIGHT, WE DID IT. We’re very sorry. But thanks to you, we won’t do it again.”
—Ben S. Bernanke
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
“For the early Depression era, Friedman and Schwartz identified at least four distinct episodes that seem to meet these criteria. Three are tightenings of policy; one is a loosening. In each case, the economy responded in the way that the monetary theory of the Great Depression would predict. I will discuss each of these episodes briefly, both because they nicely illustrate the Friedman-Schwartz method and because they are interesting in themselves.”
I’ve read Friedmann and Schwartz ‘A Monetary History of the United States’. They fault the Fed for standing idle as the money supply collapsed by a full third from 1930-33. They would have had the Fed purchase debt to keep the money supply constant, much as is being done in the present event. Anna Schwartz is in her 90s and still comments on current events.
What about this one?
Page 4 of this pdf http://www.ocee-ok.org/Where%20Did%20All%20The%20Money%20Go%20The%20Great%20Depression%20Mystery.pdf
..describes the Fed tightening the money supply to reduce speculation in the stock market.
The Fed’s tightening to limit speculation would have been a modest reduction in the availability of credit. That paper doesn’t provide us with a number but it would have been extremely small compared to what was coming over 1930-33, when 30% of the money supply vanished as thousands of banks folded leaving their depositors ruined. Friedmann considers the creation of FDIC deposit insurance to be one of the great improvements to have come out of the Depression.
The Austrian critique would be that the Fed was too lenient with credit in the years leading up to 1929 and allowed a credit bubble to build.
I’ve read Schlaes before, but not that book. She’s okay, but a journalist as opposed to an economist.
Didn’t a lot of the money disappear as a result of individuals simply burying or hiding their money?
People run the bank, it closes, the end, right?
I’m just trying to get as much information as possible, this subject never ceases to amaze me.
In that era when a bank failed the money on deposit in savings and checking accounts simply ceased to exist. Depositors were wiped out. This money truly disappeared. (FDIC would be created to alleviate this danger to depositors)
The fear of this sort of loss spreading prompted people to pull their money out of sound banks and to keep it at home. This money didn’t disappear, it just withdrew from the banking system. This tended to weaken otherwise sound banks and forced them to call in loans in order to keep their reserves in proper proportion.
In this era of the gold standard you could make a technical distinction between “money” and “credit money”, although both functioned in the way that we commonly think of as money. “Money” was the essential core of the money supply that couldn’t disappear: gold coin (specie), minor silver coinage, and some paper Treasury notes (U.S. Notes, the echo of the Civil War greenback issue). This “money” couldn’t disappear. Think of this “money” as the bottom level of an inverted pyramid.
You have on top of this “money” another, larger edifice, that of “credit” (or “bank money” or “credit money”). This is the expansion of money that a bank creates when it makes a loan and credits the new money to your deposit account. It is a multiple of the reserves that the bank must hold as a core against its loans. This is where “printing money” actually happens, at your local bank when they make a loan.
This “credit” is subject to disappearing. When the U.S money supply contracted by fully one-third during the ‘30s it was credit money, bank money, that vanished.
Today FDIC protects depositors from the sort of destruction that occurred in the ‘30s, but credit can still disappear from the banking system when borrowers default on their loans. This debt-default is deflationary, and it is what we have been experiencing since the bubble popped. The deflationary effect has been large enough to counteract the enormous surge of new money that the Fed has been pumping into the economy.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.