Posted on 12/18/2009 11:04:51 PM PST by CutePuppy
US Senators John McCain (R-Ariz.) and Maria Cantwell (D-Wash.) proposed reinstating the Depression-era Glass-Steagall Act that split commercial and investment banking to rein in Wall Street firms in response to the financial crisis.
McCain and Cantwell join other lawmakers in Congress proposing to reinstate the 1933 law, repealed a decade ago by the Gramm-Leach-Bliley Act that led to a rise in conglomerates including Citigroup, JPMorgan Chase and Bank of America active in retail banking, insurance and proprietary trading. Legislation to reinstate the ban was introduced yesterday in the House.
Under the Senate legislation, financial firms operating commercial banks and investment houses will have to decide whether to focus on commercial banking or investment banking. It would ban commercial banks from engaging in insurance activities. Cantwell said the companies would get a year from enactment to comply with the law.
(Excerpt) Read more at m.nypost.com ...
The best regulation for these banks should be a permanent ban on all bailouts. If the banks know there is not going to be a safety net, then that is one more economic incentive to be more careful in their practices.
I don’t get it -— it was repealed by Bill Clinton and the first dozen or so posters to this thread are angry about it being RE-enacted????
the Depression-era Glass-Steagall Act that split commercial and investment banking to rein in Wall Street firms in response to the financial crisisThis will appeal to a lot of anti-business types on both sides of the aisle and aisle-dealogy. Thanks hennie pennie.
McCain is an idiot...thanke G W for putting our country in this position....Obama, McCain...
aye yi yi
Though Clinton signed it, the Gramm-Leach-Bliley Act of 1999 (all three Republicans) was passed by the Republican controlled Congress.
There is plenty of blame to go around.
I disagree with your characterization of the loan applicant, mortgage originator and etc as innocent participants taking advantage of loose requirements. The CRA and other fed programs allow the banks to overlook some of the loan applicant’s qualifications if the person is low income and etc. This did not apply to high income investors or people who do not fall under the CRA. Nor does it mean Moody can assign false ratings to mortgage backed securities or the bank can bundle liar loans into portfolios and label them as conventional high quality loans and sell it to the re investor market. These people already made their money and if not investigated and punished are laughing to the bank and will repeat this scheme in the near future. If you do not punish white collar criminals they will return to repeat the crime again.
You are precisely right. In addition, all these derivatives should be done away with.
... or that the "banks" and government entities such as VA and FHA that were reselling these mortgages (in bundles or singles) were not called "banks"?
... and that the problem were not GSEs that were buying (and in large part were the final "resting place" of) the products and the CRA and other loose mortgage and credit government policies of making "banks" lend to people who would not otherwise eligible for the loans (because FNM and FRE and GNMA guaranteed buying the loans as long as their parameters were met) so that "credit risk" to originator didn't make any difference?
A fast primer : The Role of Securitization in Mortgage Lending"
Like I said, "The names may have changed, but the game stays the same."
Let's try this again :
Reinstated Glass-Steagall will not do anything to any of the above securitazation, the capital that would otherwise go to the banks will go to other entities, not called "banks" (Saving and Loans / Thrift and Loans, Credit Unions, Loans 'R' Us, maybe?) as long as mortgages can be resold to the likes of Fannie/Freddie/Ginnie and that government demands the loans to be made, while starving the "new" consumer banks of capital and margins (which consumer will have to make up for in various fees and higher interest rates, thus again hating the "new" consumer banks and bankers and pining for "good old days" of banking). All courtesy of "new" government regulations, brought to us by the likes of Johnny Mac (John McCain). What piece of legislation are we going to blame then?
Repealing and reinstating a nonsense piece of legislation - that has never done what it was set out to do, from day one until repeal - will not change the facts of how the mortgage "industry" operates today (almost entirely controlled and now half-owned by the government), only who gets to make and keep the money and who will eventually be liable and pay for it.
And again, from my post, here's what FDIC's Chair Sheila Bair, which is broke already, wants done today (banks' safety or banks' loans regardless of safety): Enough said about where they stand on that?
Repeal of Glass-Steagall was not the problem, reinstatement is not the solution, in fact more regulations, while risk-free incentives are unchanged or greater than before, will lead to more problems. Federal Deposit Insurance Corp. Chairman Sheila Bair said she’s “concerned” that U.S. banks are making only the safest loans, and encouraged the companies to step up their pace of lending. .....
And while Fannie and Freddie are gobbling up more taxpayers money, politicians are pointing fingers to blame the repeal of G-S, so we can avert our eyes from real problems, caused by them - http://www.freerepublic.com/focus/f-news/2411007/posts?page=7#7
“This was made legal when Glass-Steagall was repealed by Bill Clinton.
Though Clinton signed it, the Gramm-Leach-Bliley Act of 1999 (all three Republicans) was passed by the Republican controlled Congress.
There is plenty of blame to go around.”
You are right.
Generally I favor deregulation, but I am not a complete libertarian, just a conservative. I think government’s role is to make some laws to protect us from
predatory get rich quick schemes that the general public may not fully understand, and against selling insurance with no backing. It took the period after the civil war with its rampant fraud, to develop and pass Glass-Steagall. It was a good law that served us well and should be re instituted.
Some conservatives get all gung ho on the general principal of deregulation and don’t realize that we do need some laws.
The root of all culprits is the Fed. The Fed has had the authority to prevent the sort of systemic risk that has taken down the banking system from arising. The Fed, under Greenspan, exercised no controls on what was obviously a bubble in real estate.
The Fed today is still not exercising any regulatory or other control over the banking system. They could, if they wanted, de-escalate the risk inherent in the system today. Instead, the response of the Fed is to warp the yield curve to the bankers’ advantage, provide cheap money and swaps to bail them out of their bad decisions and make whole investments that should be hit with a risk loss.
Since the Fed has seen fit to do this, there is only one alternative and that is for Congress to make regulation through federal law. G-S won’t solve all the ills of today, but it would prevent the next AIG and Citi from forming and force these beasts back into their appropriate boxes. What is needed is actually far more regulation, including but not limited to:
1. Banning dark pools and private markets in financial securities and commodities. If they’re going to be traded, get them out into the open on regulated markets where they can be seen and accounted.
2. Banning of credit default swaps where the seller hasn’t the capital to make good on the swap, and the purchase of said contract where the buyer has no financial interest in the underlying issue. The CDS market is rather too much like a mob sub-cult right now, peddling life insurance on people they’re hoping to get a contract to hit.
3. The net effects of the CFMA 2000 should be unwound. Put financial and energy futures back under the same body of law that regulates commodity and ag futures.
4. Increase bank reserve requirements.
5. Decrease permitted leverage to 10:1, no more. If I can’t trade at more than 10:1, then neither can the investment banks.
6. Outlaw SIV’s and similar accounting dodges. All banks, hedge funds, et al must mark to market. If there is no market, then there’s prima facie evidence that there’s something wrong with the issue, not that there is a problem with the market.
Fannie, Freddie, FHA et al are indeed a big part of the problem, I agree. The root cause goes back to the Fed, again. Who is propping up the RMBS market right now? The Fed. To the tune of $1.2 trillion. With defaults climbing into the jumbo prime tranches, and prime defaults on conforming notes going up, it is abundantly clear that the Fed is going to take losses on their RMBS portfolio. Since Congress shows no spine to take on the Fed, the only solution I have is to so severely constrict the banking sector that there will be no future opportunities for the Fed to play their games again.
“In addition, all these derivatives should be done away with.”
Too late, it’s now global.
Derivatives are the lifeblood of carbon trading. The powers that overlooked Climategate did so because of the enormous sums in play there.
Building another cash cow for powerful interests.
Well, there is nothing wrong with Banks selling mortgages in bundles, the problem lays in the taxpayer being forced to subsidize those banks via the FDIC.
To me, they can be traditional banks, or investment banks, they cannot and should not be both if they are on the FDIC plan.
Imho a bank that wishes to engage in those activities should remove themselves from the FDIC pool, and either create their own insurance pool or self insure.
Glass Steagel revived is not the way to go, something completely new is needed but we will never see that day.
I like to use the analogy of a referee in football. Now everybody hates the referees, especially when they make calls against your team. But imagine if football were played without referees. You wouldn't have much of a game. The difference is when referees go from merely enforcing the rules, and have a vested interest in who wins the game, that's where we are now. And if the Democrats had their way, they would empower the referees to tell each team what plays they could and could not run. The conservative position, is that while referees are vital, their role should be limited to merely enforcing the rules, and making sure neither team gains an advantage unfairly. Regulation should work, like a referee in a football game.
Exactly. We can call it McCain-Cantwell "Shrinking Our Way to Prosperity" bill.
Very well said! I will remember that analogy.
:’)
Please cite in context where I characterized anyone as being 'innocent.'
TIA.
The Fed today is still not exercising any regulatory or other control over the banking system. They could, if they wanted, de-escalate the risk inherent in the system today. Instead, the response of the Fed is to warp the yield curve to the bankers’ advantage, provide cheap money and swaps to bail them out of their bad decisions and make whole investments that should be hit with a risk loss.
Nail meet hammer. Spot on.
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