Glass Steagall....Yet another reason to vote for Senator Sanders!

[monicaangela]

Why is this important? I feel the repeal of the Glass-Steagall Act of 1933 has led to many of the problems we in this country and around the world are facing today.

The 1999 repeal of the original “Glass-Steagall Act” of 1933 was perhaps the single greatest criminal act committed against the economic welfare of the American people in the 20th Century. Despite all claims to the contrary, the repeal of Glass-Steagall laid the groundwork for the creation of a monstrous derivatives bubble which burst during the financial crisis of 2007-2008. Following that crash, the first act of Congress should have been to correct their folly by restoring Glass-Steagall, thus eliminating the massive bubble of gambling values and erecting a firewall between the uncontrolled speculation on Wall Street and the livelihood of the American people — precisely as Franklin Roosevelt did in 1933 when the Glass-Steagall Act was first enshrined into law. Instead, under the threats and intimidation of the largest financial institutions, Congress passed an unprecedented bailout of the Wall Street banks, on the backs of an already destitute American population. Over the subsequent eight years, our people have suffered the mounting effects of this fraud, to the point that our nation now faces another financial blowout of far-greater magnitude than even that of 2007-2008.

Glass-Steagall put properly, is not a federal regulation aimed at restraining the criminal temptations of an otherwise happy-go-lucky Wall Street. Glass-Steagall’s aim is to “throw the money changers out of the temple of our civilization”, once again, as President Franklin D. Roosevelt had the courage to do.

https://larouchepac.com/glass-steagall

Let’s make no mistake about it, the only candidate we have in the race that is even talking about restoring Glass Steagall is Bernie Sanders. Clinton is just fine with Dodd Frank and a few tweaks…a few tweaks, we see that Dodd Frank is doing absolutely nothing to restrict Wall Street and the big banks. So, I ask, what difference would it make if we put a person in the white house that is not going to even advocate for legislation that would help to fix the problems we have even with more members of their party in congress to help?

Sanders backs reviving Glass-Steagall

President Bill Clinton repealed the law in 1999. Glass-Steagall has long been popular with liberals, who argue the repeal was part of the deregulation they say led to the 2008 financial collapse.
The issue sets up a divide between Hillary Clinton, the Democratic frontrunner, and Sanders, who has been gaining on her in the polls and riding a wave of popularity among the party's liberal base.

Earlier this week, one of her economic advisers said that Clinton wouldn't be pushing to reinstate Glass-Steagall law.

Sanders was one of eight senators in 1999 who voted against its repeal.

http://thehill.com/policy/finance/248407-sanders-backs-reviving-glass-steagall

I found this video most informative:

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[basselope]

1. Don't worry we have Dodd-Frank now.

Forget the fact that is weak as water and by the time you are using the "tools", it is too late.

[monicaangela]

4. Exactly, and remember, Dodd was part of

helping to deregulate Glass Steagall so any bill that he comes up with IMHO would be weak as water because he didn't want regulation in the first place, and evidently still doesn't.

[democrattotheend]

11. Dodd-Frank is not completely without teeth

Based on the number of corporate counsel who gave presentations at my law school complaining about it, it must not be completely useless. For one thing, it has greatly expanded the incentive to blow the whistle, which is an important enforcement tool.

[JackRiddler]

13. Agreed. But think about how you've phrased it.

Not completely without teeth.

It has certainly created a bigger compliance industry, but it's not transparent. Complexity is not a sign of sophistication but an invitation to find and exploit loopholes.

The underlying incentive structures have not been addressed. Those who can best apply ruthlessness and fraud will still come out ahead and unpunished. No one believes they will be punished because they have seen no evidence that they will be punished.

[monicaangela]

32. Dodd Frank is good but it has too many loopholes

It does not go far enough, and it has not broken up any of the too big to fail banks that are even bigger now than they were when Dodd Frank was enacted.

[Hoyt]

2. Dodd-Frank with Volcker rule is better than GS. And Clinton recognizes that GS doesn't even cover

entities like AIG, Lehman Bros, etc., who participated the whole financial melt-down. That's why she's for tougher regulations for them. So, either Sanders doesn't get it, or he doesn't think his supporters will. I suspect it's both.

[monicaangela]

3. Oh really...

[revbones]

5. Is that why Volcker asked that his name not be associated with it?

And objected to the changes made to that "rule"?

Or is it better because Goldman Sachs already found the loopholes?

http://www.zerohedge.com/news/2013-12-23/how-goldman-quickly-found-volcker-rule-loopholes

http://www.wsj.com/articles/SB10001424052702304773104579273090437284158

[monicaangela]

12. This is why there is a revolving door

From Goldman Sachs to Government and back...

No wonder it's called "Government Sachs."

It seems that every few weeks, another Goldman Sachs executive goes to work for a government agency, with bankers landing in positions of power at the Treasury Department, the Federal Reserve, and pulling the levers of the massive trillion-dollar federal bailout.
http://www.huffingtonpost.com/2009/06/02/government-sachs-goldmans_n_210561.html

[basselope]

6. Dodd-Frank is a JOKE.

And what you fail to understand about the meltdown is that if GS was still in place, Lehman Bros or AIG wouldn't have been able to take down the entire economy, because it would have been isolated. But, b/c of the consolidation, the pieces became too tightly woven and the dominoes too close together. So, once one thing failed, it could take the entire institution down.. and you couldn't have Citibank going down, right along with BoA, which is why we had to rescue them.

The fact that we did it with horrible legislation like TARP is another story entirely.

Dodd-Frank is basically.. well.. USELESS. The "tools" that Clinton keeps going on about are useless once a problem starts. Yes, we have the tools in the car to fix the flat, but we are already skidding off the highway and falling over a cliff, so go fix that flat as you fall to your death. That's what Dodd-Frank is.

[Hoyt]

7. The economy was in the tank the minute housing prices dropped below mortgage balances.

Take one big institution down, or thousands of smaller ones -- don't think it makes much difference actually. Think the Savings and Loan debacle.

[basselope]

9. Yes EXACTLY.. think of the Savings and Loan debacle

And how it DIDN'T take the economy down to its knees... You know WHY? Because it was ISOLATED to Savings and Loan.

The key here is that "thousands" of smaller ones wouldn't have fallen. Some would have.. those who wrote more bad mortgages than good.. but it wouldn't have been consolidated in the same way.

We may have had a MORTGAGE crisis, but it wouldn't have carried over the way it did into other sectors.

[JackRiddler]

8. Bullshit. Why are you confusing the issue?

GS = the separation of a) FDIC-insured savings institutions (commercial and consumer) from b) investment banking and c) insurance. The failure of b or c must not be allowed to cause the failure of a.

Without the long process of weakening and then repealing GS, AIG would never have existed in the form that it did in 2008.

Lehman Bros. would have been free to fail - and the failure of this relatively small entity within the banking universe would not have threatened a chain reaction that brings down all the other entities, with no distinctions between investment and FDIC-insured savings entities. That was the situation of 2008: not Lehman but the counter-party dominoes.

Dodd-Frank addresses none of this, because the banks as presently constituted cannot tolerate this form of protecting the larger economy. It gets in the way of their profits.

[monicaangela]

10. Exactly!!

Thank you JackRiddler!

[Recursion]

15. AIG was never covered by Glass-Steagall to begin with

You do know that, right? The repeal of Glass-Steagall had no impact on what it could do, except I guess that would have allowed it to open FDIC-insured retail checking and savings accounts, which it didn't do and never showed any interest in wanting to do.

[Dem2]

16. .

[JackRiddler]

17. AIG was selling derivatives speculation as insurance.

Glass-Steagal was not just the original act, the system set up firewalls between the three sectors of investment banking, FDIC-insured and insurance companies. If not for the deregulation to allow the initial merger of Citicorp with Traveller's, it's dubious that AIG could have legally engaged in the high-risk and fradulent CDS activity (totally uncovered) and unlikely its failure would have threatened a domino collapse of all the other entities including banks with FDIC-insured deposits. Joe Cassano and his crew should still be sitting in Supermax for what they did, and I think you know this. Though it's hard to say that the covert bailout of Goldman Sachs and Societe Generale through the "AIG" backdoor wasn't an even more criminal act, with the full participation of the Wall Street-captured government.

[Recursion]

18. Which Glass-Steagall did not prevent

If not for the deregulation to allow the initial merger of Citicorp with Traveller's, it's dubious that AIG could have legally engaged in the high-risk and fradulent CDS activity

How is that even remotely dubious? There was literally nothing a law that didn't impact AIG at all could do to modify its behavior.

[JackRiddler]

19. Read.

1) There was previously a tripartite firewall and you presumably know this?

2) AIG and its counterparties could have and should have all been allowed to go to hell, followed by mass prosecutions and harsh sentences, if the dominoes didn't include FDIC-insured entities.

[Recursion]

20. Those are two separate questions

There was previously a tripartite firewall and you presumably know this?

There was a porous one between insurers and IBs, and a much stronger one between IBs and CBs. Some CBs branched out into investment banking after Glass Steagall was repealed. These were not the institutions that failed, except for Citi, which failed on the retail side on investments it would have been legal to make under Glass Steagall.

In theory some of the IBs could have offered FDIC insured checking accounts. None of them did. They are the institutions that failed

[JackRiddler]

21. It doesn't only matter who failed and you know that too.

Why do you keep avoiding the point? It matters most that failure of the strictly speculative entities (who had made fraud into their business model) translated into a domino effect that would bring down entities that were mixed between speculative activity, insurance, and FDIC-insured deposits. Not just Citi but BoA were going down, and this would have likely taken down most of the rest, including the European banks who were in equally deep. The entities holding FDIC-insured deposits should not have been allowed to engage in IB activities. This is what GS and other laws had barred until the deregulation wave of the 80s to 90s. Otherwise the investment banks could have been allowed to go to the hell they so richly deserved, and their executives could have been sent to the (figurative) guillotine, at any rate the (literal) 25 hard ones. But what's the point, you keep evading these points because you probably (based on your posts here) think it was all rational behavior and not a vast set of interlocking criminal enterprises, the bailout was the only way, etc. etc.

[Recursion]

22. And that was not because Glass-Steagall was repealed

Why do you keep avoiding the point?

Because it's a complete non-sequitur. BofA and Citi's ability to operate a proprietary desk as an IB had nothing to do with the fact that Lehman and AIG were over-leveraged and bribing ratings agencies to call their toxic bullshit solid gold. That didn't have anything to do with Glass-Steagall, that had to do with the social fact that everybody knew the ratings agencies were in the big IBs' pockets but nobody wanted to do anything about it.

The entities holding FDIC-insured deposits should not have been allowed to engage in IB activities

Sure, but those entities didn't fail, the pure IBs did. Why do you keep avoiding the point?

[YCHDT]

25. They don't know what IBs are, the CBs didn't even want bail out money!!!!

The IBs became bank holding company's just to get bailout money on the end.

I after either Sanders doesn't understand our he doesn't want his followers to understand

[JackRiddler]

26. Sigh!

So IBs & AIG failed and this set off a domino effect in which they would have taken down everything else because everything was interdependent because everyone was free to simultaneously engage in conventional as well as "investment" as well as insurance activity and this was because the former firewalls had been taken down. Elementary, but apparently beyond your will to acknowledge.

[Recursion]

29. But Citi's and BoA's exposure wasn't from their IB desk

It was from their retail desk which was free to buy toxic shit from Lehmen even under Glass Steagall.

Glass Steagall didn't prevent banks from dropping capital into shitty securities; it kept them from offering securities to customers.

[JackRiddler]

30. They bought toxic shit to offer it to customers.

It's true that GS - as a system of firewalls - wasn't enough to stem the level of fraud happening here, with the ratings agencies at the center of it. None of which has changed! The incentive system is the same - no one's punished, no one lost a bonus.

[Recursion]

31. Which is why fixing that is much more important to me than going back to Glass Steagall

The problem was the agent incentive effects that made money for brokers even when they were selling shit that was bad for their clients.

They bought toxic shit to offer it to customers.

True, and those clients lost out just like they would have lost out if they'd gone to Salomon or Bear. And that also meant no exposure for the banks because it was the customers getting screwed. The exposure to the commercial banks came because they dropped some of their own capital into the same pile of crap, which they were free to do under GS too.

[YCHDT]

24. Yeap, they have know idea why it happened

[JackRiddler]

27. Someone who can't spell "no" shouldn't be arrogant.

[YCHDT]

28. ... Then they spell check you... Then you when

[MisterP]

14. even the LaRouchies want it, and they're the guys the students have to call the RA on

to get them kicked out of the dorm!

[YCHDT]

23. CFMA vote is worse than GS by a mile. Only those who have no fundamental idea of what happened..

think GS was the main culprit

[monicaangela]

33. I agree YCHDT