Should the Glass Steagall Act be brought back?

[Peach]

Gramm-Leach-Bliley actually repealed part of Glass-Steagall, I can see a downside to Gramm-Leach, yes. Thus, I would say yes, with the knowledge I have at this point.

 

[occupied]

.

The conflicts of interest that sprouted and manifested after G/S was repealed planted distortions throughout the banking, and then economic, systems.

And, even after Dodd/Frank, most of those distortions still exist.

They merely require more paperwork.

.

The G-S act also did not allow banks to be in the insurance business and was repealed mostly to allow Citibank to merge with Travelers, talk about your unintended consequences.

 

[Contumacious]

I of course am the one vote against bringing back the Glass-Steagal Act.

I have asked this question hundreds of times, and I never get an answer.

Name ONE bank that if Glass-Steagall was still enforced, would have not crashed? And on what basis would you make the claim?

Countrywide? Nope.
IndyMac? Nope.
Bear Stearns? Nope.
Wachovia? Nope.
AIG? Nope.
Washington Mutual? Nope.

The vast vast majority of all the banks that crashed... none of them would have been affected by Glass-Steagall in any way.

So now, if you have a reason to bring back Glas Steagall, what is it?

And don't tell me it is to prevent another sub-prime melt down, because if so, then I want the name of the banks (not one), bank(S) that would have been 'saved' under Glass Steagall, and I want a specific provision of Glass Steagall, and how it applied to those banks, that would have stopped them from crash.

If you can provide me that evidence, I'll consider it.

I've got a better question for you, Andy...

Glass-Steagall was put in after the '29 crash to prevent another one.

WUT?

Glass-Steagall was put in after the '29 crash to CREATE THE ILLUSSION THAT THE CONGRESSCRITTERS WERE SEROUS ABOUT PREVENTING ANOTHER CRASH.

The ONLY way to prevent another crash is to abolish the Federal Reserve Board.

.

.

 

[Andylusion]

And still even now, with several more posts, not one single person can point to a single bank, or bank(S) that would have been saved by the Glass Steagall act.

And the whole idea is ridiculous.

the set of rules that kept a savings-and-loan type bank from engaging in speculative, risky training with customers’ deposits.

Fail? What do you think banks do with deposits? Every action a bank engages in has speculative risk.

If you loan money to a business, and the economy tanks, and that business fails, you lose the money.

If you loan money an individual, and the economy tanks, and that individual loses his job, you lose money.

If you loan money to another bank, and the economy tanks, and that bank goes under, you lose the money.

What do you think any regulation would do to prevent banks from taking a risk with the money? Bury it in the yard behind the bankers house?

The entire concept is just ridiculous.

Glass Steagall would not fix anything. It certainly didn't prevent the S&L crash in the 80s, or the housing crash in the 70s. There is absolutely no evidence whatsoever to suggest it caused, or would have hindered the Sub-prime melt down in 2008.

People claim to be so scientific in their policies, and yet this has absolutely nothing to back it.

WTF? Do you even know the difference between commercial and investment banks or what Glass Steagall was about? Commercial banks make their money on LOANS, not investments. That's the difference. Anyway, the 2008 meltdown was the creation of a generation of greed-heads that acted like kids in a candy store without any rules and FREE MONEY. If their boards weren't aware of what was happening, they should be indicted for malfeasance. But they did and should have been indicted under RICO statutes.

First off, there was never any point at which there were no rules. Never. Sorry, didn't happen.

Second, when you buy a bond, a bond is basically you loaning money to someone else, instead of someone loaning you money.

I was using a very loose definition of 'loan'. Banks give money to things they think will earn them back more money than they give.

That's how the entire financial system works.

But regardless of all of that..........

I stand by my original question:

Name for me more than one bank that would have been prevented from crashing during the sub-prime melt down, because of Glass-Steagall.

I know of only one bank that even would have been AFFECTED by Glass Steagall, and there is little chance it would not have crashed even with it.

 

[Andylusion]

I of course am the one vote against bringing back the Glass-Steagal Act.

I have asked this question hundreds of times, and I never get an answer.

Name ONE bank that if Glass-Steagall was still enforced, would have not crashed? And on what basis would you make the claim?

Countrywide? Nope.
IndyMac? Nope.
Bear Stearns? Nope.
Wachovia? Nope.
AIG? Nope.
Washington Mutual? Nope.

The vast vast majority of all the banks that crashed... none of them would have been affected by Glass-Steagall in any way.

So now, if you have a reason to bring back Glas Steagall, what is it?

And don't tell me it is to prevent another sub-prime melt down, because if so, then I want the name of the banks (not one), bank(S) that would have been 'saved' under Glass Steagall, and I want a specific provision of Glass Steagall, and how it applied to those banks, that would have stopped them from crash.

If you can provide me that evidence, I'll consider it.

I've got a better question for you, Andy...

Glass-Steagall was put in after the '29 crash to prevent another one. It prohibited investment banks and savings banks from doing business under the same roof and outlawed derrivitives. For over 50 years, not a single melt-down occurred in our economy.

Then why, not long after that fucking piece of shit Phil Gramm put his garbage bill through Congress and Slick Willie signed it, effectively repealing Glass-Steagall, we had another meltdown?

Care to answer that, Andy?

Sure. That's easy. You are flat out, wrong. That's why.

First off, your entire argument is X is true, and Y is true, therefore X caused Y.

Hello.... For over a hundred years, we've had the phrase "correlation does not equal causation", and yet you people on the left are still pushing it.

Second.... like I said.... you are just wrong. Y isn't even true. We've never had a melt down? We've had two.

There was a price bubble and crash in the 1970s. The only reason no one noticed is because the entire 1970s sucked.

But we also had a crash in the 1980s. Remember the S&L crisis? That was same crash.

Of course the key to this chart, is that the price bubble started BEFORE Glass Steagall was Repealed.

So how do you explain that?

While you are at it, how about you explain how throughout the rest of the world, they have NEVER HAD a Glass Steagall act, and yet the problem started in the US.

How do you explain that? In fact, most of the rest of the world doesn't have nearly as much regulation as the US does. Yet the problem started here.

Care to answer that, Billy?

 

[Andylusion]

.

The conflicts of interest that sprouted and manifested after G/S was repealed planted distortions throughout the banking, and then economic, systems.

And, even after Dodd/Frank, most of those distortions still exist.

They merely require more paperwork.

.

The G-S act also did not allow banks to be in the insurance business and was repealed mostly to allow Citibank to merge with Travelers, talk about your unintended consequences.

Yeah, and Citi spun off Travelers before the crash.

Again, name a bank that would have been prevented from crashing, by the G-S act? Which one?

 

[georgephillip]

Bump...

It is hard to understand why conservatives or libertarians would support extending the federal entitlement to commercial banks via deposit insurance to non-banking operations:

"Absent Glass-Steagall, banks could purchase anything from an aluminum company to a fast food franchise and (indirectly) fund its acquisitions and operations with federally-subsidized deposits.

"If you run an independent aluminum company or fast food franchise do you want to have to compete with a federally-subsidized rival?"

Conservatives and Libertarians should Support the Return of Glass-Steagall | The Big Picture

 

[Andylusion]

Bump...

It is hard to understand why conservatives or libertarians would support extending the federal entitlement to commercial banks via deposit insurance to non-banking operations:

"Absent Glass-Steagall, banks could purchase anything from an aluminum company to a fast food franchise and (indirectly) fund its acquisitions and operations with federally-subsidized deposits.

"If you run an independent aluminum company or fast food franchise do you want to have to compete with a federally-subsidized rival?"

Conservatives and Libertarians should Support the Return of Glass-Steagall | The Big Picture

Funny how you don't have a problem with all the independent mortgage lenders competing against Fannie and Freddie, which are both federally subsidized.

But even then, it doesn't matter, because owning a small company, doesn't make that company have a competitive advantage. Countrywide was a subsidiary to Bank of America. That didn't stop them from crashing, and needing to be bought out.

Further, other banks in other countries have been doing this for years, without any problem. Chase when they sold off their aluminum holding, ended up selling it to a foreign bank. So that just make foreigners lots of money, at our expense. Brilliant move leftards.

 

[GHook93]

What use is a law that was not even being strictly enforced while it was in effect? I mourn for the days when the government acknowledged that bankers are criminal scum and need to be policed.

Wow your a dumb ass! Banks are in the business of making money, but they're also the means to safe guard one's money (checking and saving accounts), to buy homes, cars and start and keep a business afloat. Banks do a lot of good including the very big banks!


Sent from my iPhone using USMessageBoard.com

 

[georgephillip]

Bump...

It is hard to understand why conservatives or libertarians would support extending the federal entitlement to commercial banks via deposit insurance to non-banking operations:

"Absent Glass-Steagall, banks could purchase anything from an aluminum company to a fast food franchise and (indirectly) fund its acquisitions and operations with federally-subsidized deposits.

"If you run an independent aluminum company or fast food franchise do you want to have to compete with a federally-subsidized rival?"

Conservatives and Libertarians should Support the Return of Glass-Steagall | The Big Picture

Funny how you don't have a problem with all the independent mortgage lenders competing against Fannie and Freddie, which are both federally subsidized.

But even then, it doesn't matter, because owning a small company, doesn't make that company have a competitive advantage. Countrywide was a subsidiary to Bank of America. That didn't stop them from crashing, and needing to be bought out.

Further, other banks in other countries have been doing this for years, without any problem. Chase when they sold off their aluminum holding, ended up selling it to a foreign bank. So that just make foreigners lots of money, at our expense. Brilliant move leftards.

When did Countrywide become a subsidiary to BofA?
Before or after the Crash?
What exactly do you imagine Fannie's and Freddie's role is compared to "all the independent mortgage lenders?"

 

[Andylusion]

It is hard to understand why conservatives or libertarians would support extending the federal entitlement to commercial banks via deposit insurance to non-banking operations:

"Absent Glass-Steagall, banks could purchase anything from an aluminum company to a fast food franchise and (indirectly) fund its acquisitions and operations with federally-subsidized deposits.

"If you run an independent aluminum company or fast food franchise do you want to have to compete with a federally-subsidized rival?"

Conservatives and Libertarians should Support the Return of Glass-Steagall | The Big Picture

Funny how you don't have a problem with all the independent mortgage lenders competing against Fannie and Freddie, which are both federally subsidized.

But even then, it doesn't matter, because owning a small company, doesn't make that company have a competitive advantage. Countrywide was a subsidiary to Bank of America. That didn't stop them from crashing, and needing to be bought out.

Further, other banks in other countries have been doing this for years, without any problem. Chase when they sold off their aluminum holding, ended up selling it to a foreign bank. So that just make foreigners lots of money, at our expense. Brilliant move leftards.

When did Countrywide become a subsidiary to BofA?
Before or after the Crash?
What exactly do you imagine Fannie's and Freddie's role is compared to "all the independent mortgage lenders?"

Roles are different because Fannie and Freddie are huge. Of course the reason Fannie and Freddie are huge, is because they are backed by the government.

Countrywide was a subsidary before the crash. It didn't prevent them from crashing. Nor would some bank owning aluminum.

 

[georgephillip]

Funny how you don't have a problem with all the independent mortgage lenders competing against Fannie and Freddie, which are both federally subsidized.

But even then, it doesn't matter, because owning a small company, doesn't make that company have a competitive advantage. Countrywide was a subsidiary to Bank of America. That didn't stop them from crashing, and needing to be bought out.

Further, other banks in other countries have been doing this for years, without any problem. Chase when they sold off their aluminum holding, ended up selling it to a foreign bank. So that just make foreigners lots of money, at our expense. Brilliant move leftards.

When did Countrywide become a subsidiary to BofA?
Before or after the Crash?
What exactly do you imagine Fannie's and Freddie's role is compared to "all the independent mortgage lenders?"

Roles are different because Fannie and Freddie are huge. Of course the reason Fannie and Freddie are huge, is because they are backed by the government.

Countrywide was a subsidary before the crash. It didn't prevent them from crashing. Nor would some bank owning aluminum.

The roles are different because Fannie and Freddie purchase home loans made by private firms and package those loans into mortgage-backed securities. Funny how you think that means independent mortgage lenders compete against Fannie and Freddie.

 

[TrainTime]

Glass Steagall would not fix anything. It certainly didn't prevent the S&L crash in the 80s, or the housing crash in the 70s. There is absolutely no evidence whatsoever to suggest it caused, or would have hindered the Sub-prime melt down in 2008.


First off, there was never any point at which there were no rules. Never. Sorry, didn't happen.

Second, when you buy a bond, a bond is basically you loaning money to someone else, instead of someone loaning you money.

I was using a very loose definition of 'loan'. Banks give money to things they think will earn them back more money than they give.

That's how the entire financial system works.

But regardless of all of that..........

I stand by my original question:

Name for me more than one bank that would have been prevented from crashing during the sub-prime melt down, because of Glass-Steagall.

I know of only one bank that even would have been AFFECTED by Glass Steagall, and there is little chance it would not have crashed even with it.

WTF2? How was GS supposed to stop the S&L crash when they weren't under banking rules and thus could offer interest rates banks could not. The " 70's housing crash"...WTF does that have to do with banking rules? And BONDS? Bonds are issued by government entities not banks! Seriously, you're blithering and wasting our time.

 

[Andylusion]

Glass Steagall would not fix anything. It certainly didn't prevent the S&L crash in the 80s, or the housing crash in the 70s. There is absolutely no evidence whatsoever to suggest it caused, or would have hindered the Sub-prime melt down in 2008.


First off, there was never any point at which there were no rules. Never. Sorry, didn't happen.

Second, when you buy a bond, a bond is basically you loaning money to someone else, instead of someone loaning you money.

I was using a very loose definition of 'loan'. Banks give money to things they think will earn them back more money than they give.

That's how the entire financial system works.

But regardless of all of that..........

I stand by my original question:

Name for me more than one bank that would have been prevented from crashing during the sub-prime melt down, because of Glass-Steagall.

I know of only one bank that even would have been AFFECTED by Glass Steagall, and there is little chance it would not have crashed even with it.

WTF2? How was GS supposed to stop the S&L crash when they weren't under banking rules and thus could offer interest rates banks could not. The " 70's housing crash"...WTF does that have to do with banking rules? And BONDS? Bonds are issued by government entities not banks! Seriously, you're blithering and wasting our time.

It's funny, because everyone says this stuff, and then when I read about it, the opposite is true.

Savings and Loan Crisis: The Concise Encyclopedia of Economics | Library of Economics and Liberty

Regulation Q was extended to S&Ls.
Usury laws were extended to S&Ls.
Restrictions on branching, prevented S&Ls from diversifying.

Over and over, regulations caused the S&Ls to die. Not to mention Freddie and Fannie undercutting the S&Ls, even while interest rates on deposits were still high from the 1970s.

Again.... I am asking a question... which banks would you point to, that Glass Steagall would have prevented from crashing? Name them.

 

[georgephillip]

Glass Steagall would not fix anything. It certainly didn't prevent the S&L crash in the 80s, or the housing crash in the 70s. There is absolutely no evidence whatsoever to suggest it caused, or would have hindered the Sub-prime melt down in 2008.


First off, there was never any point at which there were no rules. Never. Sorry, didn't happen.

Second, when you buy a bond, a bond is basically you loaning money to someone else, instead of someone loaning you money.

I was using a very loose definition of 'loan'. Banks give money to things they think will earn them back more money than they give.

That's how the entire financial system works.

But regardless of all of that..........

I stand by my original question:

Name for me more than one bank that would have been prevented from crashing during the sub-prime melt down, because of Glass-Steagall.

I know of only one bank that even would have been AFFECTED by Glass Steagall, and there is little chance it would not have crashed even with it.

WTF2? How was GS supposed to stop the S&L crash when they weren't under banking rules and thus could offer interest rates banks could not. The " 70's housing crash"...WTF does that have to do with banking rules? And BONDS? Bonds are issued by government entities not banks! Seriously, you're blithering and wasting our time.

Few people are more qualified to opine on the Savings and Loan Crisis than Bill Black. Bill was a federal regulator who inspired Charles Keating to issue a "death" threat against Black for his role in sending Keating to prison.
Bill confirms your point that Glass Steagall did not apply to Savings and Loan operations prior to the debacle:

"But one of the proofs of that was the savings and loan debacle, because savings and loans were not subject to the same Glass-Steagall limitations.

"They could do whatever their status said they could do.

"And California famously said, you can do as many direct investments as you want. And the direct investment was where you'd have that ownership interest.

"So you could own real estate, you could own, you know, Wendy's franchises, you could own windmill farms and anything that you wanted.

"And that ended disastrously.

"And one of the leading practitioners of that was Charles Keating. And it ended badly, and proving all of the reasons why Congress was smart enough to pass Glass-Steagall in the first place."

In the wake of the S&L Crisis, however, some members of Congress began trying to use GS like prohibitions on savings and loan operations:

"And even as early as 1986, some members of Congress had figured out this was a bad thing and were trying to, in essence, use Glass-Steagall-like prohibitions on savings and loans.

"And Keating at that point got Senator Cranston, one of the Keating Five, to secretly put a hold on that legislation and keep it from coming up for any kind of a vote.

"Well, after the disaster of Lincoln Savings, Congress changed its mind and passed rules that pretty much apply Glass-Steagall to savings and loans.

"They did it in a convoluted way, but that was essentially the effect.

"And that again worked very well in savings and loans right up until Congress and the Clinton administration, at the behest of the banks, agreed to get rid of the effective parts of Glass-Steagall.

"And this was one of the things--not the biggest, but one of the things that contributed to the disaster."

The Savings and Loan Crisis Demonstrates the Importance of Glass-Steagall

 

[Andylusion]

When did Countrywide become a subsidiary to BofA?
Before or after the Crash?
What exactly do you imagine Fannie's and Freddie's role is compared to "all the independent mortgage lenders?"

Roles are different because Fannie and Freddie are huge. Of course the reason Fannie and Freddie are huge, is because they are backed by the government.

Countrywide was a subsidary before the crash. It didn't prevent them from crashing. Nor would some bank owning aluminum.

The roles are different because Fannie and Freddie purchase home loans made by private firms and package those loans into mortgage-backed securities. Funny how you think that means independent mortgage lenders compete against Fannie and Freddie.

They did. S&Ls were making, and keeping mortgages. They were not sold to Fannie and Freddie. Countrywide too, held mortgages, although they sold most.

 

[Andylusion]

Bill confirms your point that Glass Steagall did not apply to Savings and Loan operations prior to the debacle:[/B]

"But one of the proofs of that was the savings and loan debacle, because savings and loans were not subject to the same Glass-Steagall limitations.

"They could do whatever their status said they could do.

"And California famously said, you can do as many direct investments as you want. And the direct investment was where you'd have that ownership interest.

"So you could own real estate, you could own, you know, Wendy's franchises, you could own windmill farms and anything that you wanted.

"And that ended disastrously.

"And one of the leading practitioners of that was Charles Keating. And it ended badly, and proving all of the reasons why Congress was smart enough to pass Glass-Steagall in the first place."

In the wake of the S&L Crisis, however, some members of Congress began trying to use GS like prohibitions on savings and loan operations:

"And even as early as 1986, some members of Congress had figured out this was a bad thing and were trying to, in essence, use Glass-Steagall-like prohibitions on savings and loans.

"Well, after the disaster of Lincoln Savings, Congress changed its mind and passed rules that pretty much apply Glass-Steagall to savings and loans.

"And that again worked very well in savings and loans right up until Congress and the Clinton administration, at the behest of the banks, agreed to get rid of the effective parts of Glass-Steagall.

No fail. The S&Ls were crashing before they were allowed to buy into other investments.

They were only allowed to be.... a savings and loan. People had deposits, and they made loans on those deposits.

The regulations, caused them to have to make long term low interest loans (like on a mortgage), from relatively high interest short term deposits. Regulation Q prevented them from making high interest mortgages, while deposit rates were high.

The entire reason S&Ls were given the ability to invest in other higher risk derivatives, is because they were hoping higher return investments would keep the S&Ls alive.

It was a bad regulation. All the regulations were bad. Worse, they expended Federal Insurance to cover S&Ls, giving them the appearance of safety. Just like what happened in 2008.

 

[georgephillip]

Bill confirms your point that Glass Steagall did not apply to Savings and Loan operations prior to the debacle:[/B]

"But one of the proofs of that was the savings and loan debacle, because savings and loans were not subject to the same Glass-Steagall limitations.

"They could do whatever their status said they could do.

"And California famously said, you can do as many direct investments as you want. And the direct investment was where you'd have that ownership interest.

"So you could own real estate, you could own, you know, Wendy's franchises, you could own windmill farms and anything that you wanted.

"And that ended disastrously.

"And one of the leading practitioners of that was Charles Keating. And it ended badly, and proving all of the reasons why Congress was smart enough to pass Glass-Steagall in the first place."

In the wake of the S&L Crisis, however, some members of Congress began trying to use GS like prohibitions on savings and loan operations:

"And even as early as 1986, some members of Congress had figured out this was a bad thing and were trying to, in essence, use Glass-Steagall-like prohibitions on savings and loans.

"Well, after the disaster of Lincoln Savings, Congress changed its mind and passed rules that pretty much apply Glass-Steagall to savings and loans.

"And that again worked very well in savings and loans right up until Congress and the Clinton administration, at the behest of the banks, agreed to get rid of the effective parts of Glass-Steagall.

No fail. The S&Ls were crashing before they were allowed to buy into other investments.

They were only allowed to be.... a savings and loan. People had deposits, and they made loans on those deposits.

The regulations, caused them to have to make long term low interest loans (like on a mortgage), from relatively high interest short term deposits. Regulation Q prevented them from making high interest mortgages, while deposit rates were high.

The entire reason S&Ls were given the ability to invest in other higher risk derivatives, is because they were hoping higher return investments would keep the S&Ls alive.

It was a bad regulation. All the regulations were bad. Worse, they expended Federal Insurance to cover S&Ls, giving them the appearance of safety. Just like what happened in 2008.

Glass-Steagall prevented conflict of interest that arises frequently in the real world. Commercial banks are subsidized through federal deposit insurance. Most economists support providing deposit insurance to commercial banks for small depositors.

Can you name an economist who supports "deposit" insurance for customers of investment banks or creditors of non-financial businesses?

 

[Andylusion]

Bill confirms your point that Glass Steagall did not apply to Savings and Loan operations prior to the debacle:[/B]

"But one of the proofs of that was the savings and loan debacle, because savings and loans were not subject to the same Glass-Steagall limitations.

"They could do whatever their status said they could do.

"And California famously said, you can do as many direct investments as you want. And the direct investment was where you'd have that ownership interest.

"So you could own real estate, you could own, you know, Wendy's franchises, you could own windmill farms and anything that you wanted.

"And that ended disastrously.

"And one of the leading practitioners of that was Charles Keating. And it ended badly, and proving all of the reasons why Congress was smart enough to pass Glass-Steagall in the first place."

In the wake of the S&L Crisis, however, some members of Congress began trying to use GS like prohibitions on savings and loan operations:

"And even as early as 1986, some members of Congress had figured out this was a bad thing and were trying to, in essence, use Glass-Steagall-like prohibitions on savings and loans.

"Well, after the disaster of Lincoln Savings, Congress changed its mind and passed rules that pretty much apply Glass-Steagall to savings and loans.

"And that again worked very well in savings and loans right up until Congress and the Clinton administration, at the behest of the banks, agreed to get rid of the effective parts of Glass-Steagall.

No fail. The S&Ls were crashing before they were allowed to buy into other investments.

They were only allowed to be.... a savings and loan. People had deposits, and they made loans on those deposits.

The regulations, caused them to have to make long term low interest loans (like on a mortgage), from relatively high interest short term deposits. Regulation Q prevented them from making high interest mortgages, while deposit rates were high.

The entire reason S&Ls were given the ability to invest in other higher risk derivatives, is because they were hoping higher return investments would keep the S&Ls alive.

It was a bad regulation. All the regulations were bad. Worse, they expended Federal Insurance to cover S&Ls, giving them the appearance of safety. Just like what happened in 2008.

Glass-Steagall prevented conflict of interest that arises frequently in the real world. Commercial banks are subsidized through federal deposit insurance. Most economists support providing deposit insurance to commercial banks for small depositors.

Can you name an economist who supports "deposit" insurance for customers of investment banks or creditors of non-financial businesses?

I'm against all deposit insurance. It creates a moral hazard, in that people who make the deposits, now don't bother considering the risk level of the institution they are depositing with. As a result, there is an automatic drive to more risky investments, because the customer believes their deposits are safe, regardless of the risk the institution makes.

Thus anyone offering a percent higher interest on deposits, will get more deposits, regardless of how risky they are acting in the market.

That said, I don't care what the purpose of Glass Steagall was. The rest of the world doesn't have that, and yet the problem originated here in the US. Even to this day, Canada, UK, and most of the rest of the world, has no restriction on banks engaging in Investment, Commercial, Retail, and Insurance. Yet they still have not been the source of a crash.

 

[georgephillip]

No fail. The S&Ls were crashing before they were allowed to buy into other investments.

They were only allowed to be.... a savings and loan. People had deposits, and they made loans on those deposits.

The regulations, caused them to have to make long term low interest loans (like on a mortgage), from relatively high interest short term deposits. Regulation Q prevented them from making high interest mortgages, while deposit rates were high.

The entire reason S&Ls were given the ability to invest in other higher risk derivatives, is because they were hoping higher return investments would keep the S&Ls alive.

It was a bad regulation. All the regulations were bad. Worse, they expended Federal Insurance to cover S&Ls, giving them the appearance of safety. Just like what happened in 2008.

Glass-Steagall prevented conflict of interest that arises frequently in the real world. Commercial banks are subsidized through federal deposit insurance. Most economists support providing deposit insurance to commercial banks for small depositors.

Can you name an economist who supports "deposit" insurance for customers of investment banks or creditors of non-financial businesses?

I'm against all deposit insurance. It creates a moral hazard, in that people who make the deposits, now don't bother considering the risk level of the institution they are depositing with. As a result, there is an automatic drive to more risky investments, because the customer believes their deposits are safe, regardless of the risk the institution makes.

Thus anyone offering a percent higher interest on deposits, will get more deposits, regardless of how risky they are acting in the market.

That said, I don't care what the purpose of Glass Steagall was. The rest of the world doesn't have that, and yet the problem originated here in the US. Even to this day, Canada, UK, and most of the rest of the world, has no restriction on banks engaging in Investment, Commercial, Retail, and Insurance. Yet they still have not been the source of a crash.

You're opposed to deposit insurance so does that mean you support bank runs like those that led to the Great Depression?