The recent “Occupy Wall Street” protest movements have once again drawn attention to banking and the pitfalls of deregulation that accompanied the repeal of much of the Glass-Steagall Act of 1933 with the passage of the Gramm-Leach-Bliley Act of 1999. There has indeed been much ado about the Glass-Steagall Act, also known as the Banking Act of 1933, yet few in the media have actually taken the time to explain the act or why it is being cited so often by protestors. The Glass-Steagall Act was first enacted in 1932 and then the second was passed in response to the commercial banking collapse of 1933. Its primary aims were to control speculation by introducing the separation of banking types into commercial and investment banking branches while also starting the Federal Deposit Insurance Corporation to insure depositors up to a federally determined amount. The act allowed for “rediscounting” as a means of providing financing for a financial institution. It was the act’s separation of investment and commercial banking branches, however, that is cited by many as having prevented financial collapses like that of 2008. The act’s stated purpose was, “enacted to remedy the speculative abuses that infected commercial banking prior to the collapse of the stock market and the financial panic of 1929-1933.” The Gramm-Leach-Bliley Act of 1999 repealed much of the Glass-Steagall Act and allowed for intermingling between securities, insurance and banking institutions which was prevented by the Glass-Steagall Act. The formation of Citigroup in 1998 with the combination of Citibank, Primerica, Smith Barney, and Travelers Insurance into one company would have been illegal under the provisions of the Glass-Steagall Act. The United Kingdom’s Independent Commission on Banking’s Vicker’s Report released earlier this year detailed reforms of the British banking system that were very much akin to those introduced to the U.S. banking system by the Glass-Steagall Act of 1933. When protestors cite Glass-Steagall, it is because, had Glass-Steagall remained in place, many of the problems facing the U.S. banking sector and the whole mess with the bailouts would, theoretically, not have happened.

[CFTech]

  • What you discover in a democracy is that it is difficult to build a house when each nail has an opinion. ~ Robert Brault

  • Ellery Curtis

    And this is all laid out in great detail in the levin-colburn senate report on the causes of the financial collapse.

    Of course that does not stop some huge percentage of our country from being lead to believe that this whole mess was due to stupid poor people primarily. What did the poor or even the middle class have to do with these mis-doings of wall street? None of us knew what a credit default swap, an interest rate swap, a collateralized debt obligation (CDO), or a CDO-squared was prior to this mess. And we certainly did not know of glass-steagal, and other deregulations (for example of the commodities market, and repeal of mccarran ferguson act, etc).

    My county of residence, Jefferson County Alabama, knows all too well of how this all can happen:

    http://www.rollingstone.com/politics/blogs/taibblog/the-continual-screwing-of-jefferson-county-alabama-20110531

    Its amazing that my representative once said such things, saw this all go down, and his response is what? Let me share with you his recent newsletter to his constituents that highlights his either stupidity, or his blatent lying.

    “In my view, the weakness in the U.S. economy is partly due to overregulation that carries high costs and creates uncertainty for employers. From the health care takeover to the massive 2,300-page Dodd-Frank Act, federal regulations carry an estimated annual cost to the economy of $1.75 trillion which businesses, workers, and consumers pay for the same as a tax. As I told Treasury Secretary Geithner yesterday during a Financial Services Committe hearing, entrepreneur Charles Schwab had it right when he said the government cannot regulate our way out of economic problems.”

    So here is the chairman of the financial services committee basically saying that regulations are pointless…so much for the return of glass steagal.

    I hope the OWS folks make this a central message. The return of glass steagal from what I have read is a key ingredient to returning to some relatively more sane system. That and having the department of justic actually go hardcore after the criminals instead of letting them go by with settlements.

    My $0.02 anyway.