Tesa

Big Banks: The Consensus Is Cracking

Its not just the bigger banks that are corrupt. There many small banks that issue credit cards with 30-75% annual interest rates too. The systematic problem with the financial industry is not related to their size. It is related to lack of regulation that contains their rackets.

Both small and large banks have incentives to scam the public and participate in increasing systematic risk because only high risk actions are very profitable.

Glass-Steagall: If Not the Cause, Maybe the Cure?

"gu econ", yes it would have prevented it in fact. Many of the institutions that had purchased CDOs were regular banks who insuring high risk CDOs with an institution that insured banks and these high risk activities. There would have been no intermingling if the act was there. The act would have disallowed that.

The moral of the story is that low risk assets should not be used to insure high risk assets; at least not being hedged and the hedging requires fairly regulated body that does not cheat. Glass-Steagall is just one act that could have interfered with that process but there are others that could have replaced it but what was the replacement!.

Just think about it, imagine someone uses their house as collateral for gambling. Only the paid portion can be used as collateral otherwise other people will hold the bag for the gambler. If the house is mortgaged, its peak value should not value as collateral. Another way is o hedge against the loss of its market value when its used as collateral. The hedge should not be devised fraudulently and that means that the gambler can not do the hedging or use other gamblers to do the hedging in collusion.

Glass-Steagall: If Not the Cause, Maybe the Cure?

Nova, a good potion of what you say is valid but you are wrong in one aspect, in fact no one forced the banking system into sub prime loan making.

State governments were trying to halt the activities to protect their population but the banks were lobbying to nationalize and legalize the predatory lending. The did so for profiteering purposes.

In fact the sub-prime and predatory lending were anti-social and they were known to cause poverty because the financial institutions would try to extract more funds from those that couldn't afford it.

To top that off, many of these institution converted real estate to cash machine by allowing more and more borrowing against properties without any invested equity.

I hope you read this article to understand that there was no social engineering involved here but rather many mainstream banks were involved fraudulent practices to make more money.

www.cjr.org/the_audit/...

On Mar 09 02:46 PM nova wrote:
> -- Forcing banking system into making loans for

Glass-Steagall: If Not the Cause, Maybe the Cure?

Here were the arguments for and against the act in 1987. Its obvious now that none of arguments for its removal were valid. Conflicts of interest was not resolved and the diversification only worsened the situation by exporting more fraudulent assets. The more blurring of disjunction between loans and assets were outcome of the act.

"The argument for preserving Glass-Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

The argument against preserving the Act (as written in 1987):

1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.

2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.

3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification

4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.[7]"
en.wikipedia.org/wiki/...