Anybody care to defend Bank of America’s latest move to socialize the risk?:
Once again…why, exactly, shouldn’t G-S be restored?
Without copying wikipedia, please explain what Glass-Steagall is. Do you know what Regulation Q does? Do you know why it was eliminated 20 years ago? Can you cogently explain how it is supposed to stop something bad?
Because it would hurt the job creators!!!
I don’t think anyone who is talking about restoring Glass Steagall is talking about bringing back Regulation Q. They are talking about bringing back the separation of depository banking (insured) from investment banking. It is directly related to the issues of conflict or interest and heads-I-win-tails-you-lose type of transactions by “too big to fail” institutions. You have a hard time preventing the banks from gambling with insured deposits, an example of which is in the OP. Actually it is worse than that. After the gamble is seen to be going bad, the bank transfers the investment from the investment banking side to the commercial banking side. If it looks good, it stays on the investment banking side (no reserve requirements, so more profits).
Is bringing Regulation Q into the discussion, just a misdirection play, or do you actually have some kind of point?
1- G-S did not prevent the S&L crisis of 1989-90.
2- G-S (the portion repealed in 1999) would likewise not have prevented the mortgage crisis because the primary culprits (Lehman, Bear, Merrill, Countrywide, Golden West, IndyMac, and hundreds of others) did not attempt to combine investment banking with commercial (deposit) banking.
3- The Volcker Rule is stronger than G-S anyway and is being implemented today.
4- Canada has no G-S and its banking system is rated the safest in the world and is dominated by several very large banks (RBC and TD).
That is only one part of G-S, and the OP most definitely did not say that.
… No, it isn’t. BoA is moving funds around to make default less likely. Your arguement suggests we want more risk for bank customers.
It can’t transfer anything without the customer’s consent. Or if it’s making the investment itself, it doesn’t matter where the funds show up on the balance sheet. In this case, the bank could always use an outside party in the same way.
The point is that I’m questioning…
(1) What exactly do you think Glass-Steagall would have stopped,
(2) How it would have done so, and
(3) What the ultimate difference could have been.
Because I have yet to encounter anyone who favors Glass-Steagall who knows what it is, what it does, or what it really would change. I hold on observation that G-S has become amn emtpy symbol, allowing vague imagery to overcome a complete absense of information. Sure, it may not be unique in that, but I tend to prefer banking regulations to be done by clear-eyed men of cold hearts than fuzzy-thinking crusaders.
I would agree that G-S was not the cause of the crisis, but this is a bit of a red herring. Did the repeal of G-S make the financial system more vulnerable? Absolutely. The fact that a firm can make proprietary trades and be backed by a “too big to fail” or FDIC guarantee means that the firm will take on excessive risk. In a system with G-S in place, ML would have been far more reluctant to make the kind of risky trades they’re trying to insure now with FDIC-backed depositor’s money.
The nutshell description of Volcker Rule–restrict US banks from speculative investments that do not benefit their customers–sounds great, but the devil is in the details. According to the eponym himself, it’s been so watered down that PauL Volcker no longer supports it. Score one for the “clear-eyed men of cold hearts”.