Wall Street Crimes: President Obama is "effectively encouraging future financial fraud"

[dflprincess]

26. Dodd-Frank does not separate investment from commercial banking as Glass-Steagall did

Last edited Thu Dec 29, 2011, 12:57 AM - Edit history (1)

and that is one of its major failings. It does nothing to protect us from "too big to fail" banks as G-S did.

An interesting comparison at:
http://www.wnyc.org/articles/its-free-country/2011/nov/30/explainer-glass-steagall-back-and-will-it-be-enough/

From the link:

Simon Johnson, former chief economist with the IMF and co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, says that the "resolution authority" granted by Dodd-Frank is an illusion. "The F.D.I.C. can close small and medium-size banks in an orderly manner, protecting depositors while imposing losses on shareholders and even senior creditors," Johnson writes in the New York Times "Economix" blog. "But to imagine that it can do the same for a very big bank strains credulity."

It's that strain on credulity inherent in Dodd-Frank that has brought Glass-Steagall back into the national consciousness. Dodd-Frank seems only to take action after the fact: more government agencies overseeing a largely-unchanged financial industry; the possibility of liquidation, albeit unlikely, only once a firm presents a clear and present danger to the economy. People are beginning to view the separations enacted by Glass-Steagall, on the other hand, as pre-emptive measures against "too big to fail."

Many people who would cheer the return of Glass-Steagall also caution that it is not a magic pill. Glass-Steagall alone could not prevent the next financial crisis, say Simon Johnson and his co-author, James Kwak, in 13 Bankers. In addition to separating commercial and investment banking activities, they argue, there should be a well-defined limit on how large any financial institution is allowed to get; if they're above the limit at the time it's set, then they should be broken up and forced to reconstitute as a smaller entity.

As a starting point, Kwak and Johnson recommend that the government consider limiting a bank's holdings to no more than 4 percent of GDP. Currently, the six largest banks collectively hold assets equal to 66 percent of GDP.