Financial Shenanigans 101 – the Repeal of the Glass-Steagall Act in 1999

Posted on February 5, 2012

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I am trying to educate myself in short sharp semi palatable potions on the financial shenanigans of Fatcat bankers.  Consider the Repeal of the Glass-Steagall Act, which many analysts believe should be reinstated in full to prevent the sort of bullshit behavior that lead to the Global Financial Crisis we are all suffering through.  Has the financial reform bill addressed this obvious legislative error of the past – No it has not.

The Glass-Steagall Act once separated commercial (normal) banking from investment (casino) banking.

The full title of the Glass-Steagall Act being, “An act to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.”  It is also known as the banking act of 1933 and was created in reaction to the collapse of a large portion of the commercial banking system that contributed to the Great Depression.

One of the main reforms enacted during the Great Depression, contained in the Glass Steagall Act of 1933, was a requirement that commercial banks refrain from acting as investment banks. In other words, they were prohibited from dealing in stocks, bonds, and derivatives. This prohibition was based on an implicit understanding that there should be some sort of firewall within the financial system separating productive investment from pure speculation, or gambling. This firewall was eliminated by the passage of the Gramm—Leach—Bliley Act of 1999 (for which the financial services industry lobbied tirelessly). As a result, all largeUSbanks have for the past decade become deeply engaged in speculative investment, using both their own and their clients’ money.

Reference:

http://robertreich.org/post/818142564

http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act#Repeal

http://en.wikipedia.org/wiki/Great_depression

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Posted in: AntiGreed, Capitalism