Glass-Steagall Act

  

Categories: Regulations, Banking

Oh, those generous bankers of the ‘20s and ‘30s. They wanted to do soooo much for their clients. Loans for shipping contracts of supplies to Europe to help clean things up after the, uh...you know. Big banking deal advice for when U.S. Railroad wanted to buy B&O or Short Line or Pennsylvania or Reading (pronounced “redding”).

Big banks and even bigger fat guy bankers were…everywhere. And somehow, they all looked like the Monopoly guy. And all was good and nice and clean fun for white men…until it wasn’t. Part of what was discovered in the ashes of the post-Great Depression recovery era was that everything was…linked.

Interlocking Directorates.

Banks in cahoots with companies seeking to virtually or directly monopolize industries. Politicians in the back pockets of hugely powerful and generally unregulated banks. And yeah, people had huuuge pockets back then. Think: kangaroos.

Anyway, one of the laws that came out of that era was the separation of commercial banking services (like the people who simply lend debt money to large corporations) and investment banking services, like...the people who advise and facilitate mergers, acquisitions, and other strategic dealmaking.

The belief, or hope, was that, by separating these two, um…over-loving kids in the playground…the insider dealing...and fair resource allocating...and honest dealings of big industry would somehow be more…fair. Or at least open.

So the intent of Glass Steagall was all about fairness. In particular, it focused on the separation of commercial and investment banking. So that was that. These two types of banking were separated...and then the financial markets after 1935 were all smooth sailing, right?

Um, yeah, not so much. Glass Steagall came under assault from many angles, the biggest of which was from the big banks’ lobbying efforts, as they sought to grow...and one way to do that would be to again combine commercial and investment banking services.

So the lobby, along with fortunate (or unfortunate) timing…worked. And in 1998 Bill Clinton said, “I did not have sexual relations with that woman.” And, uh...he also repealed Glass Steagall. Ironically, his exact words were, “It was no longer appropriate.” And he was referring to “the” Act…not the one with Monica.

Anyway, it went away, and from ‘98 forward for a decade, banks merged and got bigger and more powerful. And then they got more aggressive. Loaned more money under pressure from shareholders to keep growing and delivering such loving returns. And then along came the mortgage crisis, which almost brought down the western world in 2008-ish.

A lot of long-haired profs actually blamed the unwinding of Glass Steagall as a root cause for this cataclysmic fail. The phrase “too big to fail” was bandied about. But what the phrase really meant was "too big to be allowed to fail."

Don’t worry though. Because now, with the banking system nicely regulated, we should all be in for a comfy, smooth ride for the foreseeable future...

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Finance: What is the Glass Steagall Act?1 Views

00:00

Finance allah shmoop What is the glass steagall act All

00:08

those generous bankers of the twenties and thirties They wanted

00:11

to do so much for their clients Loans for shipping

00:15

contracts of supplies to europe you know to help clean

00:18

things up after the you know big banking deal advice

00:21

for when us railroad wanted to buy you know or

00:25

pennsylvania or reading big banks and even bigger you know

00:29

bankers like that guy were everywhere and somehow they all

00:33

looked like this guy Yeah and always good and nice

00:36

and clean fun for a white men Until it wasn't

00:39

part of what was discovered in the ashes of the

00:42

post great depression recovery era was that everything was linked

00:46

like interlocking directorates Banks in cahoots with companies seeking to

00:51

virtually or directly monopolising industries politicians in the back pockets

00:55

of hugely powerful and generally unregulated banks And yeah people

01:00

had huge pockets back then You know i think kinga

01:03

roots there were no income taxes So like what would

01:05

you expect anyway One of the laws that came out

01:07

of that era was the separation of commercial banking services

01:11

like the people who simply lend debt money Teo large

01:14

Corporations mostly and investment banking services like the people who

01:18

advise and facilitate mergers acquisitions and other strategic deal making

01:23

The belief or hope was that by separating these two

01:27

over loving kids in the playground well then the insider

01:30

dealing and fair resource allocating and honest well general dealings

01:35

of big industry would somehow be more fair or at

01:38

least open So the intent of glass steagall was all

01:41

about fairness In particular it focused on the separation of

01:45

commercial and investment banking So that was that these two

01:48

types of banking we're separated and then the financial markets

01:51

well after nineteen thirty five everything was smooth sailing right

01:55

Yeah not so much Glass steagall came under assault from

01:58

many angles the biggest of which was from the big

02:00

banks lobbying efforts as they sought to consolidate i by

02:04

each other and grow and well one way to do

02:06

that would be too again combine commercial and investment banking

02:10

services and they're kind of naturally a conflict there right

02:13

So the lobby along with fortunate or unfortunate timing worked

02:17

And in nineteen ninety eight bill clinton said i did

02:20

not have sexual relations with that woman and he also

02:24

repealed glass steagall Ironically his exact words on the repeal

02:28

were it was no longer appropriate Yeah and he was

02:32

referring to the act not the other act with monica

02:36

anyway it went away and from ninety eight forward for

02:39

a decade thanks merged and got bigger and more powerful

02:42

and then they got more aggressive loaned more money under

02:45

pressure from shareholders keep growing and delivering such loving returns

02:49

And then along came the home mortgage crisis which almost

02:53

brought down the western world in two thousand eight ish

02:57

A lot of long haired props actually blamed the unwinding

03:00

of glass steagall is a root cause for this cataclysmic

03:03

fail The phrased too big to fail was bandied about

03:07

needlessly really and well guess what the banking system was

03:10

not in fact too big to fail It almost did

03:13

But don't worry because now with the banking system nicely

03:16

regulated we should all be in for a comfy smooth

03:19

ride for the foreseeable future Next century or so everything's 00:03:23.58 --> [endTime] gonna be just fine

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