10 Years After Glass-Steagall

Ten years ago today, US President Clinton delivered the coup de grace to the Glass-Steagall Act, which by that point had already been diminished by 1,000s of cuts in the prior couple of decades.

Many observers attribute a good part of the US financial crisis to the repeal of the Glass-Steagall prohibitions that had prevented a cross fertilization of investment and commercial banking functions.

Contacts in Washington report that efforts to repeal the repeal are gaining momentum. In the Senate, Banking Committee Chairman Dodd proposed earlier this week that the government should have the power to break up large institutions "as a very last resort."

In the House, the focus is on the Financial Services Committee. Chairman Frank has proposed giving the Federal Reserve the power to identify those bank holding companies whose size threatens financial stability to shrink assets and/or refrain from certain activities. One committee member wants to amend Frank's bill to allow the Fed to re-impose Glass-Steagall prohibitions on a case-by-case basis.

The chairman of the capital markets subcommittee wants to allow the break up of any large firm whose size and risk-taking poses systemic risk. Frank is sympathetic to both modifications and expects that they will be approved.

It is not immediately clear when the bill will get out of the committee or what amendments might be proposed, but the point is the general direction of movement is clear. Although European officials have taken the lead, the idea that too big to fail is too big to exist is gaining adherents in the United States.

That said, the uncertain regulatory environment has not discouraged investors from buying US bank shares. IXM, the Financial Select Sector Index, the basis for the ETF XLF has appreciated by nearly 10% since Nov. 2, recouping more than three-quarters of the 12.3% slide seen in the second half of October.

Disclosure: No positions

Comments

[bobbobwhite:]

In the infancy of American capitalism, business monopolies were discouraged and even prevented by our gov't as unfair business practices detrimental to the opportunity for competitive equality and damaging to our overall socioeconomic system.

Today we have, in modern gov-speak, many "too big to fail" companies that also are seen to threaten our economy in a similar manner, as their potential demise is considered by our gov't to also have the potential to create an excessive burden on that same system, with an extra emphasis on the potential damage to Main Street in employment and other social hardships that may not have occured to a similar extent with monopolies.

What has our gov't done in response to these two similar threats to our country internally? It treats them as entirely different entities and allows the monopolies of giant companies(Wall Street banks, Detroit) to continual at will, even bailing them out with public funds when threatened.

Does the free capitalism that built this country still exist? From the above examples, it definitely does not. We now have a new and modern version of the military/industrial complex that Eisenhower warned against as a danger to our country, only today it is known as the financial/gov't complex, with Goldman Sachs providing the primary seed people for its continued and unassailable prosperity. Pathetic, and so wrong for America.

Nov 13 10:13 AM

[a fat panda:]

"That said, the uncertain regulatory environment has not discouraged investors from buying US bank shares. IXM, the Financial Select Sector Index, the basis for the ETF XLF has appreciated by nearly 10% since Nov. 2, recouping more than three-quarters of the 12.3% slide seen in the second half of October."

Marc, Any chance that recovery has to do with the nearly trillion dollars that has been thrown at the sector? It isn't just the TARP. It is forcing interest rates down. It is buying their crappy assets. It is giving them free risk. And if that isn't enough we let them borrow at the Fed Discount Window for roughly 0%. All this proves is that if you throw enough stimulus in, you can get the dead to walk.

Nov 13 11:27 AM

[SeekingTruth:]

The House of Representatives applied the coup de grace to Glass Steagall by a Republican majority VETO PROOF vote count of 343 Yea - 86 Nay.
The Senate provided more than enough support to repeal with a 54 Yea - 44 Nay vote count.
Of the 54 Yea votes to repeal, 53 were Republican.
The Senate Bill S. 900 was initiated by three Republicans : Gramm- Leach - Bliley.
Glass Steagall Repeal was sought by the Republicans for decades, supported GHW Bush and millions of dollars of lobbying money. They had made many attempts (approx 12) before the final passage.
The repeal of Glass Steagall was not initiated or lobbied for by Bill Clinton.
Your article's leading statement implies that this was his idea and that he somehow forced it thru Congress and was delighted to sign it.
Even a casual review of the vote count dominated by the Republicans controlling the Congress should a provide a different perspective on the repeal of Glass Steagall than the one you implied by a single leading statement.

Nov 13 12:19 PM

[Robert0713:]

SeekingTruth:
thank you
thank you
thank you
thank you
thank you
thank you

I've been saying and writing these facts whenever it gets spewed out by fools and liars. It is heartwarming to know that at least one other human is also aware of the facts.

Nov 13 04:22 PM

[SeekingTruth:]

To Robert071
Thank you also for your comment , and I am equally glad to know that others try to add some facts and insight to many single points of data and statements made without support and essential clarification.
We are all guilty of this from time to time , (I am much more than I wish or intend) , but folks writing articles for public dissemination might try to be a little more supportive of their own statements with some background facts on their chosen topic.
In that context, I would also like to add some further light on my prior comment:
The vote count that I provided was prior to the joint committee work that led to the final vote count that was TOTALLY VETO PROOF. I placed emphasis on that prior vote because it massively influenced the final vote.
After the initial vote count, the handwriting for ultimate passage was on the wall because the "people had spoken thru their elected representatives" and this swayed many congresspersons to change their vote to/for Repeal, for that and a variety of different reasons.
(An aside: Does anyone really think that the majority of the American people wanted Glass Steagall repealed?)
This led to the final Totally VETO PROOF VOTE COUNT of : Senate 90 -8 and House 362-57.
In my prior comment , I meant to say that The repeal was supported "by" GHW
Bush and millions of dollars of lobbying money, (same as was done with the passage of NAFTA ).

Nov 14 07:18 AM