About Glass-Steagall – #occupyphilly #occupytogether #ows
My good friend brought this up last night. I think its important for us to become more informed about topics like this. Here is a primer from wikipedia:
The Banking Act of 1933, Pub. L. No. 73-66, 48 Stat. 162, enacted June 16, 1933, was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator Carter Glass (D—Va.) and Congressman Henry B. Steagall (D—Ala.-3). Some provisions of the Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act, named after its co-sponsors Phil Gramm (R, Texas), Rep. Jim Leach (R, Iowa), and Rep. Thomas J. Bliley, Jr. (R, Virginia).
The repeal of provisions of the Glass–Steagall Act of 1933 by the Gramm–Leach–Bliley Act effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks. This repeal directly contributed to the severity of the Financial crisis of 2007–2011 by allowing Wall Street investment banking firms to gamble with their depositors’ money that was held in commercial banks owned or created by the investment firms.
Events following repeal
The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Elizabeth Warren, author and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said the repeal of this act contributed to the Global financial crisis of 2008–2009. Others have debated what role the repeal may have played in the financial crisis.
The year before the repeal, sub-prime loans were just five percent of all mortgage lending. By the time the credit crisis peaked in 2008, they were approaching 30 percent. This correlation is not necessarily an indication of causation however, as there are several other significant events that have impacted the sub-prime market during that time. These include the adoption of mark-to-market accounting, implementation of the Basel Accords and the rise of adjustable rate mortgages.
read full wikipedia article here: