Glass-Steagall Act of 1933 - Separation of Commercial and Investment banks
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
The root of the problem is the Federal Reserve and the enthroned corporations and government corruption that grow up around it. "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." -- U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: The Lincoln Encyclopedia, Archer H. Shaw (Macmillan, 1950, NY)
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
Any "Pure" economic system is doomed to fail because people suck as a whole. Pure Communism doesn't work because there will always be some pig thinking it is more equal than the others. Pure capitalism doesn't work because there will always be some pig that is bigger than the others and will force them into doing what it wants simply through the application of power. Once it has enough power, it is easy to get more. Pure socialism doesn't work because of the above 2 combining and forcing you to work against a system that might be inherently corrupted by those pigs. Companies want pure capitalism. No oversight, no rules, just get as much money as you can get. If they had the option of handing out wages so low as to force workers to work 80 hour weeks to survive, they'd do it. At the same time they'd pay the people in power a ton of money and cheat as many people as they could whenever they could. Having the government step in is only natural. The government exists to look out for the common person. Rules and regulations designed to rein in the influences of companies and individuals are how they do it. Whenever the government relaxes rules meant to rein these guys in, it ends up costing us somehow. The last thing I want is a pig given carte blanche.
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The root of the problem is the Federal Reserve and the enthroned corporations and government corruption that grow up around it. "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." -- U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: The Lincoln Encyclopedia, Archer H. Shaw (Macmillan, 1950, NY)
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
Irrelevant. If you don't have anything intelligent to say, then get back in your cage.
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
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The root of the problem is the Federal Reserve and the enthroned corporations and government corruption that grow up around it. "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." -- U.S. President Abraham Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins) Ref: The Lincoln Encyclopedia, Archer H. Shaw (Macmillan, 1950, NY)
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
How is the Fed the root when it was the banks being allowed to do this that caused the issue?
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
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Irrelevant. If you don't have anything intelligent to say, then get back in your cage.
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
You want to go to the root of the problem if you want to fix it.
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
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How is the Fed the root when it was the banks being allowed to do this that caused the issue?
The Fed feeds the banks endless amounts of easy credit at low interest rates.
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
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Any "Pure" economic system is doomed to fail because people suck as a whole. Pure Communism doesn't work because there will always be some pig thinking it is more equal than the others. Pure capitalism doesn't work because there will always be some pig that is bigger than the others and will force them into doing what it wants simply through the application of power. Once it has enough power, it is easy to get more. Pure socialism doesn't work because of the above 2 combining and forcing you to work against a system that might be inherently corrupted by those pigs. Companies want pure capitalism. No oversight, no rules, just get as much money as you can get. If they had the option of handing out wages so low as to force workers to work 80 hour weeks to survive, they'd do it. At the same time they'd pay the people in power a ton of money and cheat as many people as they could whenever they could. Having the government step in is only natural. The government exists to look out for the common person. Rules and regulations designed to rein in the influences of companies and individuals are how they do it. Whenever the government relaxes rules meant to rein these guys in, it ends up costing us somehow. The last thing I want is a pig given carte blanche.
so really some kind of immortal benevolent dictatorship is in order that would be able to balance out the regulations so that no pig would be too big to overpower everything, no company would battery hen the workers and all pigs are created equal. Shame that'd never happen, you would end up with a pig in charge sooner or later. ...now I want bacon. Darnit.
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Any "Pure" economic system is doomed to fail because people suck as a whole. Pure Communism doesn't work because there will always be some pig thinking it is more equal than the others. Pure capitalism doesn't work because there will always be some pig that is bigger than the others and will force them into doing what it wants simply through the application of power. Once it has enough power, it is easy to get more. Pure socialism doesn't work because of the above 2 combining and forcing you to work against a system that might be inherently corrupted by those pigs. Companies want pure capitalism. No oversight, no rules, just get as much money as you can get. If they had the option of handing out wages so low as to force workers to work 80 hour weeks to survive, they'd do it. At the same time they'd pay the people in power a ton of money and cheat as many people as they could whenever they could. Having the government step in is only natural. The government exists to look out for the common person. Rules and regulations designed to rein in the influences of companies and individuals are how they do it. Whenever the government relaxes rules meant to rein these guys in, it ends up costing us somehow. The last thing I want is a pig given carte blanche.
So basically, you're saying the separation is a good thing... Government steps in and keeps them honest.
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
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So basically, you're saying the separation is a good thing... Government steps in and keeps them honest.
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
Yes. We have governments mainly for mutual security. We figure someone needs to look out for us so we create a system that does it. When the people in charge listen to the interests of the people they should be watching, something needs to get fixed. ALas, that's pretty much how it always works out though. We really just need a benevolent dictatorship with me in charge. (Damn super spies)
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so really some kind of immortal benevolent dictatorship is in order that would be able to balance out the regulations so that no pig would be too big to overpower everything, no company would battery hen the workers and all pigs are created equal. Shame that'd never happen, you would end up with a pig in charge sooner or later. ...now I want bacon. Darnit.
JHizzle wrote:
Shame that'd never happen, you would end up with a pig in charge sooner or later.
I know. The trick is to get a decent pig that isn't trying to steal your eggs or work you to death.
JHizzle wrote:
...now I want bacon. Darnit.
Me too, I guess this analogy is a bad idea around lunch time...
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The Fed feeds the banks endless amounts of easy credit at low interest rates.
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
You really need to read about how credit works. And black propaganda. and strawmen. and milli-meter wave scanners. and... oh heck forget it...
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You really need to read about how credit works. And black propaganda. and strawmen. and milli-meter wave scanners. and... oh heck forget it...
ragnaroknrol wrote:
You really need to read about how credit works.
Oh? Perhaps it is you who need to learn how credit works in our Federal Reserve & fractional reserve banking system.
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
Replying instead of editing, so as not to interrupt the flow. A quick example to illustrate the difference between having and not having this separation... "Bob's Investment Co." is a hedge fund, or mutual fund, or any sort of investor not including a commercial bank... They're trying to decide where to invest their money. Now, they have $100mln to invest (As an example)... They find a security that can invest in that will net them a 30% profit, but there's a 10% chance it'll go belly-up and they'll lose their investment. So basically, they can make 30% or lose 100%. I don't care what models you use... That's a bonehead move. If they have any brains at all, they'll find something a little more sensible. If they want to take that risk, then they deserve the pain if they lose. "Bank of Bob" is an investment bank that includes a commercial bank... They see the same security... 30% profit, and a 10% chance it goes under. The Bank of Bob, however, is investing mostly customer money. $90mln of that is from insured customer accounts, and the last $10mln is from investors Now, their upside is still 30%, so they can make $30 million, but their downside is much less. If that security defaults, and they lose their entire investment, then how much did they really lose for their clients? $10mln. The other $90mln is FDIC-insured, so the government has to rescue all of those savings accounts. Suddenly, this is looking like a really good investment, because it really doesn't matter as much if it fails. Obviously, the real life situation is considerably more complex, but as I see it, the calculation is similar. So the Glass-Steagall Act basically removes the downside protection. Every company has to choose: 1) Invest in anything they want. Do whatever they want with their money. If they screw up, however, no one's going to save them. (Investment firm) 2) Government provides a safety net (FDIC insurance, Fed backing), which allows them to promise their customers that their money will be safe. As a condition of this protection, they're not allowed to play the market. (Commercial bank)
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
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Ok, so the latest move by the Obama administration is to attack the "To Big to Fail" problem, which Robin Williams amusingly equated to "Too Fat to Diet." Well, time for some weight loss, if Obama gets his way. Basically, what he wants to do is instate something similar to the Glass-Steagall Act of 1933 (Which also started the FDIC), enacted after the Great Depression and partially repealed in 1999. This law prohibited commercial banks from doing business on Wall Street. Right now, the big four (J.P. Morgan, Citigroup, Bank of America, and Wells Fargo) all include both a market security arm and a commercial banking arm (They're not the only ones, just the best examples). That means they're both taking customer deposits, and investing in risky instruments on the market. If they go bankrupt because of those risky instruments, as was happening in '08 and '09, they put the customer accounts (FDIC-insured) at risk, making it the taxpayers' problem. This is only allowed because of the repeal of the Glass-Steagall Act (Well, the parts that prohibited this) in 1999. Now the government wants to reinstate this, which would pretty much force the big guys to do one of three things: 1) Get out of the market, and just work with customer deposits and loans, like a commercial bank (Considerably lowers profits). 2) Close out customer accounts, and operate exclusively as an investment firm (Considerably lowers buying power and market "muscle"). 3) Split into two or more companies, each of which does only one of the above, hence reversing many of the recent mergers (JP Morgan + Chase, Citi + Travelers, etc). Now, the street hates it... When Obama announced it, the market dropped a few hundred points for two days. Personally, I think this might be a good thing, but I'd like to see some other viewpoints. So... Good idea? Bad idea? References: * Wikipedia[^] - Notice the section on the proposed reinstatement, backed by Senator McCain (R-Arizona), Senator Cantwell (D-Washington), and Paul Volcker (Former Fed chairman) * Ratical.com[^] - Some explanation on why it was originally instated *
How about this, FDIC insured accounts are not available for any wall street maneuvering. However people may open accounts which are not insured(at a higher interest rate I'd assume), without the insurance that the company may then use. Put little statements on the contract to the effect of 'this bank may loose all of your money in a ponzi scheme, but if they don't you get a few fractions of a cent extra each year' for the second kind of account. If the banks do well they do well, if they don't it only hurts those who can't come crying to the tax payer.
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ragnaroknrol wrote:
You really need to read about how credit works.
Oh? Perhaps it is you who need to learn how credit works in our Federal Reserve & fractional reserve banking system.
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]
Oi, I leveraged that banking system into affording something I couldn't at the time by paying the guy I was borrowing the money interest on it. I'm actually sending out a check today to finish paying that debt. Dude got his money, I got a method of transport, and someone earned a fraction of a percent on money they weren't using. Credit is easy, responsible credit is the problem.
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Irrelevant. If you don't have anything intelligent to say, then get back in your cage.
Proud to have finally moved to the A-Ark. Which one are you in? Author of Guardians of Xen (Sci-Fi/Fantasy novel)
Ian, he's saying the same thing I'm saying, only doing it bluntly. In order to fix a problem, you go to the source. You shouldn't make the problem worse by making more problems. You're basing your whole argument on believing that people don't know what to do. But I say that giving more power to the government is never a good idea. Think of the founding fathers. "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -- Thomas Jefferson Do you see any kind of correlation, or do you think that this is just rhetoric?
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How is the Fed the root when it was the banks being allowed to do this that caused the issue?
Before the rest of that response list grows any further, I want to cut this one off at the source. The Fed IS a bank. It is fully indpendent... which is why we can't audit them... in the real sense. Ian would respond here by saying, "yes, it does get audited". Yes. But all of the most important stuff does not get audited. So it is a private independent bank, which answers to literally nobody. It is the only bank in the entire world without any independent auditing system. I call that a problem.
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Oi, I leveraged that banking system into affording something I couldn't at the time by paying the guy I was borrowing the money interest on it. I'm actually sending out a check today to finish paying that debt. Dude got his money, I got a method of transport, and someone earned a fraction of a percent on money they weren't using. Credit is easy, responsible credit is the problem.
Distind wrote:
Credit is easy, responsible credit is the problem.
The difference between a private loan from a bank or individual is that when you borrow from them, everyone from the private individual to the bank volunteer and the conditions are known across the board. With the Federal Reserve however, there are the serious problems of morality and the corruption that immoral and inherently corrupt power breeds. With the Federal Reserve system, unlimited money comes from the power to devalue currency. The bank, and the people that profit from it steal unlimited money and throw it out to however it pleases (national or international, private or public).
Watch the Fall of the Republic (High Quality 2:24:19)[^] Sons Of Liberty - Free Album (They sound very much like Metallica, great lyrics too)[^]