Glass-Steagall

[Nickman]

Should we reinstate and enforce Glass-Steagall? Senator Warren makes some very good points on this subject. Prior to the Glass-Steagall Act in 1933 the banks crashed about every 15 years on average. After the act passed, there were zero large crashes in large banks until the early 80s when we bagan to deregulate the banks. Anyone who is not familiar with the act, it keeps banks from investing and gambling in he market with depositors money. All the risk is on the depositors. You put in 20,000 in savings and the bank goes under....you are out of luck. Bill Clinton ended the last of Glass-Steagall before he left office, and in 2008 we saw the biggest crash since the depression.

Elizabeth Warren is trying to get these regulations back into the banks. Should we want Glass-Steagall to be reinstated? I think so. I'd like to hear your thoughts.

[WinePusher]

Glass-Steagall keeps large banks from being able to gamble depositors money and regulates what they can and cannot do as far as investing.

You didn't read a single word I wrote did you?

When GS was in effect we had zero large bank crashes and we saw the best economic growth in our country's history.

Prove it. First challenge.

Elizabeth Warren is one of the best Senators we have. She is not the only one attacking this issue. John McCain is also.

No, Rand Paul is one of the best Senators we have. Elizabeth Warren destroyed her credibility by pathetically lying about her nationality, AND also knows nothing about economics. The same is true for her fans. And are you really bringing up John McCain? John McCain, the guy who wants to invade Syria and arm al Qaeda? I don't care what John McCain has to say about anything.

Regulating the banks is a must. Consumers are the back bone of the economy but on every turn we see big business and large corporations getting the upper hand on us. Regulating the banks is one big step that we can do to ensure consumers are not stepped on and that our economy stays healthy.

I already responded to this, and you ignored it. 'Second of all, the banking system is the most overregulated industry in America. This is troubling in and of itself. There are real economic consequences of excessive governmental regulations, so the last thing we should be doing is trying to introduce more regulations. Rather, we should be trying to repeal the regulations that already exist.'

After reading what you wrote I can tell that you have no clue what deadweight loss is. You also don't seem to understand that there are real economic consequences to regulations. Every regulation placed upon a business raising their marginal costs of production, which the business shifts to the consumer in the form of a price increase. Regulation hinders economic growth.

It is not a coincidence that we had zero large bank crashes in 50 years while GS was in effect. It is no coincidence that we crashed in 2008 after banks were deregulated.

And I already responded to this, AND you ignored it again. 'Third of all, glass steagall would have done absolutely nothing to prevent the 2008 crash. Elizabeth Warren apparently knows nothing about the recession if she believes glass steagall would have made a difference. The question is why banks were engaging in subprime lending and giving out loans to unqualified borrowers. And the answer is because a mixture of government regulations forced banks to do so. The expansion of the money supply during the early 2000's under Alan Greenspan artificially caused interest rates to decline, which incentive banks to lend more. In addition, banks were pressured to lend to poor people via the Community Reinvestment Act and banks were shielded from any risks because the loans they made were securitized by government agencies like Fannie Mae/Freddie Mac and private investment banks on Wallstreet.'

[Nickman]

Glass-Steagall keeps large banks from being able to gamble depositors money and regulates what they can and cannot do as far as investing.

You didn't read a single word I wrote did you?

When GS was in effect we had zero large bank crashes and we saw the best economic growth in our country's history.

Prove it. First challenge.

Elizabeth Warren is one of the best Senators we have. She is not the only one attacking this issue. John McCain is also.

No, Rand Paul is one of the best Senators we have. Elizabeth Warren destroyed her credibility by pathetically lying about her nationality, AND also knows nothing about economics. The same is true for her fans. And are you really bringing up John McCain? John McCain, the guy who wants to invade Syria and arm al Qaeda? I don't care what John McCain has to say about anything.

Regulating the banks is a must. Consumers are the back bone of the economy but on every turn we see big business and large corporations getting the upper hand on us. Regulating the banks is one big step that we can do to ensure consumers are not stepped on and that our economy stays healthy.

I already responded to this, and you ignored it. 'Second of all, the banking system is the most overregulated industry in America. This is troubling in and of itself. There are real economic consequences of excessive governmental regulations, so the last thing we should be doing is trying to introduce more regulations. Rather, we should be trying to repeal the regulations that already exist.'

After reading what you wrote I can tell that you have no clue what deadweight loss is. You also don't seem to understand that there are real economic consequences to regulations. Every regulation placed upon a business raising their marginal costs of production, which the business shifts to the consumer in the form of a price increase. Regulation hinders economic growth.

It is not a coincidence that we had zero large bank crashes in 50 years while GS was in effect. It is no coincidence that we crashed in 2008 after banks were deregulated.

And I already responded to this, AND you ignored it again. 'Third of all, glass steagall would have done absolutely nothing to prevent the 2008 crash. Elizabeth Warren apparently knows nothing about the recession if she believes glass steagall would have made a difference. The question is why banks were engaging in subprime lending and giving out loans to unqualified borrowers. And the answer is because a mixture of government regulations forced banks to do so. The expansion of the money supply during the early 2000's under Alan Greenspan artificially caused interest rates to decline, which incentive banks to lend more. In addition, banks were pressured to lend to poor people via the Community Reinvestment Act and banks were shielded from any risks because the loans they made were securitized by government agencies like Fannie Mae/Freddie Mac and private investment banks on Wallstreet.'

You asked me to prove that Glass-Steagall was in effect we had zero large bank crashes and we saw the best economic growth in our country's history. That is simple history. We already provided evidence that 50 years we didn't have a large bank crash. Prior to 1933 and the reason for Glass-Steagall was
the depression, and over 4,000 bank crashes. In order to remedy the situation and regulate banks so this wouldn't happen, GS was put in place and it worked for 50 years until it was repealed in 1999. Soon after we have a huge crash in 2008. Although GS wouldn't have stopped this crash, we still had 50 years instead of 15 years of prosperity.

[WinePusher]

You asked me to prove that Glass-Steagall was in effect we had zero large bank crashes and we saw the best economic growth in our country's history. That is simple history.

Please prove that the 'best economic growth' and the 'zero large bank crashes' were BECAUSE of Glass Steagall. I bet you can't .

We already provided evidence that 50 years we didn't have a large bank crash. Prior to 1933 and the reason for Glass-Steagall was
the depression, and over 4,000 bank crashes.

Do you actually know what caused the depression? Both Milton Friedman (an economist from the freshwater school) and Ben Bernanke (an economist from the saltwater school) agree that the Federal Reserve caused the depression due to an inadequate amount of discount window lending. The consensus among economists is that Glass Steagall is a worthless piece of legislation, wherein the costs greatly exceed the benefits.

In order to remedy the situation and regulate banks so this wouldn't happen, GS was put in place and it worked for 50 years until it was repealed in 1999.

Like I said, Glass Steagall would have done nothing to prevent the depression or the recent recession. All Glass Steagall does is delineate the lines between commercial and investment banks. Investment banks were the ones gambling with toxic assets, not commercial banks.

Soon after we have a huge crash in 2008. Although GS wouldn't have stopped this crash, we still had 50 years instead of 15 years of prosperity.

We had 50 years of economic prosperity because of Glass Steagall? Really? I took History of Economic Thought and Economic History of the US in undergrad school and I can tell you for a fact that after the great depression we experienced many panics and short term recessions, along with stagflation during the 1970s. So your information is simply wrong.

And thank you for finally admitting that Glass Steagall wouldn't have stopped the recent recession.

[Nickman]

You asked me to prove that Glass-Steagall was in effect we had zero large bank crashes and we saw the best economic growth in our country's history. That is simple history.

1. Please prove that the 'best economic growth' and the 'zero large bank crashes' were BECAUSE of Glass Steagall. I bet you can't .

We already provided evidence that 50 years we didn't have a large bank crash. Prior to 1933 and the reason for Glass-Steagall was
the depression, and over 4,000 bank crashes.

2. Do you actually know what caused the depression? Both Milton Friedman (an economist from the freshwater school) and Ben Bernanke (an economist from the saltwater school) agree that the Federal Reserve caused the depression due to an inadequate amount of discount window lending. The consensus among economists is that Glass Steagall is a worthless piece of legislation, wherein the costs greatly exceed the benefits.

In order to remedy the situation and regulate banks so this wouldn't happen, GS was put in place and it worked for 50 years until it was repealed in 1999.

3. Like I said, Glass Steagall would have done nothing to prevent the depression or the recent recession. All Glass Steagall does is delineate the lines between commercial and investment banks. Investment banks were the ones gambling with toxic assets, not commercial banks.

Soon after we have a huge crash in 2008. Although GS wouldn't have stopped this crash, we still had 50 years instead of 15 years of prosperity.

4. We had 50 years of economic prosperity because of Glass Steagall? Really? I took History of Economic Thought and Economic History of the US in undergrad school and I can tell you for a fact that after the great depression we experienced many panics and short term recessions, along with stagflation during the 1970s. So your information is simply wrong.

5. And thank you for finally admitting that Glass Steagall wouldn't have stopped the recent recession.

1, 2, 3, 4, and 5: HarvardMag

Of course, financial panics and crises are nothing new. For most
of the nation’s history, they represented a regular and often debilitating
feature of American life. Until the Great Depression, major
crises struck about every 15 to 20 years—in 1792, 1797, 1819, 1837,
1857, 1873, 1893, 1907, and 1929-33.
But then the crises stopped. In fact, the United States did not
suffer another major banking crisis for just about 50 years—by far
the longest such stretch in the nation’s history. Although there
were many reasons for this, it is difficult to ignore the federal government’s
active role in managing financial risk. This role began to
take shape in 1933 with passage of the Glass-Steagall Act, which
introduced federal deposit insurance, significantly expanded federal
bank supervision, and required the separation of commercial
from investment banking.
The simple truth is that New Deal financial regulation worked.
In fact, it worked remarkably well. Banking crises essentially
disappeared after 1933 (see chart, page 26), without any apparentreduction in economic growth. Not only was the period of 1933-
1980 one of unusually strong growth, but the growth was broad
based, associated with stable or falling income inequality, rather
than with the rising inequality that took hold after 1980.Perhaps even more striking, America’s post-Glass-Steagall financial
system soon became the envy of the world. Although critics
had warned that the forced separation of commercial from investment
banking could undermine the nation’s financial system,
American financial institutions from Morgan Stanley to Goldman
Sachs dominated global high finance for the remainder of the century.

Critics of Glass-Steagall had also warned that federal deposit
insurance would encourage excessive risk-taking, what economists
call “moral hazard.� According to this argument, because
depositors would no longer have to worry about the soundness
of their banks and might well be attracted by the higher interest
rates offered by riskier institutions, funds would ultimately flow
to weak banks—rather than strong—and losses could mount.
Said one opponent in 1933, “A reputation for high character [in
banking] would be cheapened and recklessness would be encouraged.�
Fortunately, the authors of Glass-Steagall (and the follow-on
Banking Act of 1935) prepared for this threat, authorizing not
only public deposit insurance but also meaningful bank regulation,
designed to ensure the safety and soundness of insured
banks. Regulation was necessary to deal with the moral hazard
that critics warned about. The combination of insurance and regulation
adopted as part of Glass-Steagall engendered a powerful
dose of consumer protection, a remarkable reduction in systemic
risk, and a notable increase in public confidence in the financial
system. By all indications, this well designed risk-management
policy strengthened the financial markets and helped prevent
subsequent crises.

[WinePusher]

Of course, financial panics and crises are nothing new. For most
of the nation’s history, they represented a regular and often debilitating
feature of American life. Until the Great Depression, major
crises struck about every 15 to 20 years—in 1792, 1797, 1819, 1837,
1857, 1873, 1893, 1907, and 1929-33.
But then the crises stopped. In fact, the United States did not
suffer another major banking crisis for just about 50 years—by far
the longest such stretch in the nation’s history. Although there
were many reasons for this, it is difficult to ignore the federal government’s
active role in managing financial risk. This role began to
take shape in 1933 with passage of the Glass-Steagall Act, which
introduced federal deposit insurance, significantly expanded federal
bank supervision, and required the separation of commercial
from investment banking.
The simple truth is that New Deal financial regulation worked.
In fact, it worked remarkably well. Banking crises essentially
disappeared after 1933 (see chart, page 26), without any apparentreduction in economic growth. Not only was the period of 1933-
1980 one of unusually strong growth, but the growth was broad
based, associated with stable or falling income inequality, rather
than with the rising inequality that took hold after 1980.Perhaps even more striking, America’s post-Glass-Steagall financial
system soon became the envy of the world. Although critics
had warned that the forced separation of commercial from investment
banking could undermine the nation’s financial system,
American financial institutions from Morgan Stanley to Goldman
Sachs dominated global high finance for the remainder of the century.

I've already addressed every single point your study brings up. Either type up your own post, in your own words, refuting my arguments or I'm done.

Critics of Glass-Steagall had also warned that federal deposit
insurance would encourage excessive risk-taking, what economists
call “moral hazard.� According to this argument, because
depositors would no longer have to worry about the soundness
of their banks and might well be attracted by the higher interest
rates offered by riskier institutions, funds would ultimately flow
to weak banks—rather than strong—and losses could mount.
Said one opponent in 1933, “A reputation for high character [in
banking] would be cheapened and recklessness would be encouraged.�
Fortunately, the authors of Glass-Steagall (and the follow-on
Banking Act of 1935) prepared for this threat, authorizing not
only public deposit insurance but also meaningful bank regulation,
designed to ensure the safety and soundness of insured
banks. Regulation was necessary to deal with the moral hazard
that critics warned about. The combination of insurance and regulation
adopted as part of Glass-Steagall engendered a powerful
dose of consumer protection, a remarkable reduction in systemic
risk, and a notable increase in public confidence in the financial
system. By all indications, this well designed risk-management
policy strengthened the financial markets and helped prevent
subsequent crises.

This makes no sense. What was the specific regulation that eliminated the moral hazard caused by deposit insurance?

[Nickman]

[Replying to post 35 by WinePusher]

When I posted my own material, you didn't accept that so I posted information from Harvard. Im sorry but Glass-Steagall shows itself to be necessary because of history. The article shows this, as well as, the 50 years of prosperity we had while it was in full effect. There is nothing more I can tell you.

I could post article after article but it wouldn't do anything. Your NeoCon ways won't allow that.

[WinePusher]

When I posted my own material, you didn't accept that so I posted information from Harvard.

I didn't accept it because you keep regurgitating the same stuff over and over. You're like a broken record, all you keep saying is 'Glass Steagall good' 'Glass Steagall good' 'Glass Steagall good.' In my very first post I presented several objections to Glass Steagall that you ignored. When I pressed you on these objections you continued to ignore them. I'll bring them up one last time:

There are real economic consequences to regulations. The financial services/banking sector is one of the most heavily regulated markets in the United States. This is problematic in and of itself because, as I said, regulations are a burden on firms. They cause business' marginal costs to go up and stifle competitiveness. This is precisely why Glass Steagall was repealed in the first place. So, the onus is upon you to prove that the benefits of Glass Steagall exceed the costs of Glass Steagall. In other words, you must prove that Glass Steagall does more good than harm.

Im sorry but Glass-Steagall shows itself to be necessary because of history. The article shows this, as well as, the 50 years of prosperity we had while it was in full effect. There is nothing more I can tell you.

You could try proving that our so called '50 years' of prosperity were directly because of Glass Steagall. You could try binge more specific and explain what you mean by '50 years of prosperity.' And you could try to address the arguments I've been bringing up.

Btw, I went and reread your source and yes, it does acknowledge that the FDIC creates a moral hazard. And it goes further to say that Glass Steagall eliminates the moral hazard. But, it doesn't explain how or why.

I could post article after article but it wouldn't do anything. Your NeoCon ways won't allow that.

Yes, my 'NeoCon' ways prevent me from believing your nonsense.

[Nickman]

When I posted my own material, you didn't accept that so I posted information from Harvard.

I didn't accept it because you keep regurgitating the same stuff over and over. You're like a broken record, all you keep saying is 'Glass Steagall good' 'Glass Steagall good' 'Glass Steagall good.' In my very first post I presented several objections to Glass Steagall that you ignored. When I pressed you on these objections you continued to ignore them. I'll bring them up one last time:

There are real economic consequences to regulations. The financial services/banking sector is one of the most heavily regulated markets in the United States. This is problematic in and of itself because, as I said, regulations are a burden on firms. They cause business' marginal costs to go up and stifle competitiveness. This is precisely why Glass Steagall was repealed in the first place. So, the onus is upon you to prove that the benefits of Glass Steagall exceed the costs of Glass Steagall. In other words, you must prove that Glass Steagall does more good than harm.

I already did by showing you fifty years of proof. That is something you ignore. I also showed you the years previous to GS, and the years after. Those years were horrible with multiple crashes every fifteen years. Regulation on firms is not a problem. We need to regulate our money. You are coming from a pro-capitalism approach that allows 2% of Americans to own more than 40% of the entire wealth of the country. That is not good for economy. It allows businesses to own consumers and dictate how they spend. Allowing the banks to invest depositors money into these already overly wealthy giants fuels the fire for economic downfall as it did when the banks were not regulate for doing this. When GS was in place this didn't happen and for 50 years we had low level bank crashes but zero large banks. As soon as we deregulated the banks, we see another large crash of these giants again. The reason is because they invest out depositors money in these large companies whom the depositors are buying consumer goods from. The idea is that this money if funneled right back into the banks making them richer and the corporation get richer as well. The consumer gets poorer and poorer, and when they cant afford the goods supplied by these big corporations, the stocks go down. Guess who is invested in these stocks? The banks. Whos money are they using to invest? Consumers! You don't seem to understand what is actually happening. You are just regurgitating the same Fox News info that is favorable to these big corporations. You should really be concerned about your own money I nstead of making these corporations richer. Youve been had by your NeoCon ideas.


[

[WinePusher]

Regulation on firms is not a problem.

Say's who? You? What credibility do you have to make such a statement? The main problem with any exogenous governmental regulation is that it disrupts the normal market process. Economists refer to this as the invisible hand, which guides all economic transactions to optimal results. When you regulate firms, you reduce efficiency and one of the consequences of reducing efficiency is higher prices which harms the consumer.

We need to regulate our money.

How would we do this according to you? Do you even understand how money works? Do you understand how the federal reserve system operates? Yes, we do need to regulate our money, but I doubt someone like you has any clue what this means or how we should go about doing so.

You are coming from a pro-capitalism approach that allows 2% of Americans to own more than 40% of the entire wealth of the country.

Do you even know what wealth is? Wealth refers to tangible assets like a house, or a car, or a factory. Of course the Capitalist class owns the majority of the wealth in this country because wealth includes things like capital equipment, machinery and factories. The working class has no claim to these things, therefore the amount of total wealth they own will obviously be lower.

That is not good for economy.

Your uninformed, poorly thought out ideas are not good for the economy.

It allows businesses to own consumers and dictate how they spend.

lol what? So, basically what you've just said is that wealth inequality allows businesses to own consumers and dictate how they spend? Doesn't make sense.

Allowing the banks to invest depositors money into these already overly wealthy giants fuels the fire for economic downfall as it did when the banks were not regulate for doing this.

This little gem right here proves that you have no clue what you're talking about. Banks do not 'invest depositors money into overly wealthy giants.' Banks take a fraction of consumer deposits and turn them over into loans that are then lent out to the public. This is called fractional reserve banking, wherein the bank only keeps a fraction of your deposits (about 10%) on hand and uses the other 90% to lend out loans to companies and consumers alike.

You don't seem to understand what is actually happening.

LOL. I understand way more than you do, and you don't seem to understand anything about economics. Just saying.

You are just regurgitating the same Fox News info that is favorable to these big corporations. You should really be concerned about your own money I nstead of making these corporations richer.

Nickman, if anybody is blinded by partisan, political propaganda it is you. First of all, I don't watch Fox News. Second of all, I've actually taken time out of my life to study economics at the undergrad and graduate level which is why I'm able to see your nonsense for what is really is, nonsense. Nothing you've written here makes any sense at all. All you've done is regurgitate the information you read from some liberal blog like the Huffington Post.

Youve been had by your NeoCon ideas.

At least I actually understand these issues unlike some people. If you want to talk about complex subjects like Glass Steagall you should probably learn the basics first. Concepts like fractional reserve banking, or how interest rates are determined (the loanable funds model) or how the federal reserve works. Btw, these aren't 'NeoCon' ideas, they're libertarian ideas that originated with Adam Smith and were refined by other great economists like Jeremy Bentham, Jean Baptiste Say, David Ricardo, FA Hayek and Milton Friedman. Even John Maynard Keynes wouldn't support your absurd ideas.

[Nickman]

Regulation on firms is not a problem.

Say's who? You? What credibility do you have to make such a statement? The main problem with any exogenous governmental regulation is that it disrupts the normal market process. Economists refer to this as the invisible hand, which guides all economic transactions to optimal results. When you regulate firms, you reduce efficiency and one of the consequences of reducing efficiency is higher prices which harms the consumer.

What credibility do you have? I have college, but I am no economist. I still study the subject. So your ad hom will not work here. Address the argument not the man.

When you regulate commercial banks so that they cannot invest your money into corporations it prevents large crashes. We already have investment banks. When a commercial bank invests depositors money into large corporations and the stocks go down, depositors lose their money and are less likely to spend. These depositors normally purchase from these large companies, but if their deposits are depleted because they have been invested in these big corporations, they will not spend into these big corporations which furthers the economic collapse. You can't raise the price of these stocks again if the consumers have no money to spend into the large companies.

How would we do this according to you? Do you even understand how money works? Do you understand how the federal reserve system operates? Yes, we do need to regulate our money, but I doubt someone like you has any clue what this means or how we should go about doing so.

We do it through Glass-Steagall. We already have investment banks. These banks specialize in investing and the person who puts money into the bank is assuming the risks. In commercial Banks, citizens just want their money to sit there with minimal growth and zero risk. This is the problem, banks currently can invest your money even though you just want it to sit. They are relying on those deposits to be there., but if banks are allowed to invest it and lose it, then you have lost your deposits and the rest is history. Glass-Steagall gave us a black and white between commercial and investment banking. Since deregulated, you cannot tell the two apart.

Someone like me? What does that mean?

Do you even know what wealth is? Wealth refers to tangible assets like a house, or a car, or a factory. Of course the Capitalist class owns the majority of the wealth in this country because wealth includes things like capital equipment, machinery and factories. The working class has no claim to these things, therefore the amount of total wealth they own will obviously be lower.

Which is a problem with our capitalist approach. The rich get richer and the poor get poorer.

Your uninformed, poorly thought out ideas are not good for the economy.

And what poorly formed ideas would that be?

lol what? So, basically what you've just said is that wealth inequality allows businesses to own consumers and dictate how they spend? Doesn't make sense.

Sure it does. When the US Chamber of Commerce comes together and speaks privately about how they can make more money and relieve themselves of all responsibility to their goods and high prices, then they are dictating how we spend. When the CoC lobbys to legislate laws that favor big business and smears consumers, then they are dictating how consumers spend and make consumers take all responsibility, even for the faults of large corporations. Look at arbitration laws, Lawsuit caps, and the like. The consumer cannot even receive justice if he/she is wronged by big business.

This little gem right here proves that you have no clue what you're talking about. Banks do not 'invest depositors money into overly wealthy giants.' Banks take a fraction of consumer deposits and turn them over into loans that are then lent out to the public. This is called fractional reserve banking, wherein the bank only keeps a fraction of your deposits (about 10%) on hand and uses the other 90% to lend out loans to companies and consumers alike.

Sure they do. Glass-Steagall separated commercial banks from investment banks. Since deregulated, commercial banks can assume the same status they had prior to GS which was no difference between investment and commercial banking. There is no line between the two. They can be one in the same. Such banks are Wells-Fargo and Bank of America.

Investopedia
The Glass-Steagall Act's primary objectives were twofold – to stop the unprecedented run on banks and restore public confidence in the U.S. banking system; and to sever the linkages between commercial and investment banking that were believed to have been responsible for the 1929 market crash. The rationale for seeking the separation was the conflict of interest that arose when banks were engaged in both commercial and investment banking, and the tendency of such banks to engage in excessively speculative activity.

LOL. I understand way more than you do, and you don't seem to understand anything about economics. Just saying.

Nice ad hom

Nickman, if anybody is blinded by partisan, political propaganda it is you. First of all, I don't watch Fox News. Second of all, I've actually taken time out of my life to study economics at the undergrad and graduate level which is why I'm able to see your nonsense for what is really is, nonsense. Nothing you've written here makes any sense at all. All you've done is regurgitate the information you read from some liberal blog like the Huffington Post.

You have failed to realize what GS actually did and how it separated Commercial banks from Investment banks to restore trust in our post Depression economy and banking system, which it did 100%. It also led to 50 years of prosperity because consumers could tell the difference between investment banks and commercial banks. They knew which banks they could deposit their money into and not assume much risk.