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Glass-Steagall did not address the systemic risks being associated with "too big to fail"

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:20 AM
Original message
Glass-Steagall did not address the systemic risks being associated with "too big to fail"
First. here's Mark Thoma claiming that the current bill doesn't end too big to fail:

This bill is not going to end the problem of too big to fail. If the banking system is threatened, then one way or the other it will be bailed out. The consequences to the economy would be too large to do otherwise. Thus, banks that are big enough to pose a systemic risk enjoy an advantage over other banks. Banks that pose a systemic risk will be assumed to be safer than other banks due to the implicit government guarantee. This gives large banks an advantage over smaller banks that do not, on their own, threaten the financial system if they fail.

But what exactly is he talking about? When has there ever been a law that allows the break up big banks that pose a systemic risk?

The claim made by some that reinstating Glass-Steagall would do this ignores that Glass-Steagall wasn't about the systemic risk posed by the size of commericial banks. Glass-Steagall was about separating commercial banking from investment banking:

Banking Act of 1933 (P.L. 73-66, 48 STAT. 162).
Also known as the Glass-Steagall Act. Established the FDIC as a temporary agency. Separated commercial banking from investment banking, establishing them as separate lines of commerce.

link


Here is Robert Knutter describing Glass-Steagall in 2007:

Rubin's crowning achievement was the repeal of the 1933 Glass-Steagall Act, which had separated largely unregulated and more speculative investment banks like Goldman Sachs from government-supervised and -insured commercial banks like Citi, which play a key role in the nation's monetary policy. Glass-Steagall was designed to prevent the kinds of speculative conflicts of interests that pervaded Wall Street in the 1920s and helped bring about the Great Depression (and reappeared in the 1990s).

Glass-Steagall was steadily weakened by regulatory exceptions under three administrations going back to George Bush Senior. The premise was that tearing down the regulatory walls would promote competition. But the effect was to create greater concentration and renewed opportunities for insider enrichment.



Krugman: Too big to fail FAIL

Im a big advocate of much strengthened financial regulation. One argument I dont buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, its just not possible.

The point is that finance is deeply interconnected, so that even a moderately large player can take down the system if it implodes. Remember, it was Lehman not Citi or B of A that brought the world to the brink.

And as far as I know, there never was a time when policymakers could have viewed the collapse of a major money center bank with equanimity.

They certainly were worried about systemic risk in 1982, when I had something of a front-row seat. There were fears that the Latin debt crisis would take down one or more money center banks Citi, or Chase, say. And policy was shaped in part by the desire to make sure that didnt happen. Bear in mind that this was in the days before the repeal of Glass-Steagal, before finance got so big and wild; the New Deal regulations were mostly still in place. Yet even then major banks were too big to fail.

So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary; theres no way to make this automatic.

So when Thoma says "Banks that pose a systemic risk will be assumed to be safer than other banks due to the implicit government guarantee." He's really talking about a risk that existed even before the repeal of Glass-Steagall.

Here is Robert Knutter earlier this month:

Bring Back Glass-Steagall: Among the crucially important provisions that did not make it into either final bill is the Merkley-Levin amendment which would draw a bright line separating taxpayer-insured commercial banks from financial firms that gamble and trade derivatives and other risky other securities for their own accounts (the "Volcker Rule.") There is still a decent chance that this could make it into the final bill.

It did make it into the bill. The current bill does exactly what Glass Steagall did---separate commercial banking from investment banking---and more through a combination of the Volcker Rule and Lincoln's derivatives provision.

Here is Joseph Stiglitz:

Some argue that a sufficiently strengthened Volcker rule including the Levin-Merkeley amendment will suffice. But even ignoring the carveouts (e.g., for market making and customer facilitation), Section 716 and a strong Volcker rule should be viewed as complementary, not as substitutes.

The real concern should be that even with both in place, a too-big-to-fail institution not FDIC-insured could still pose systemic risk.

Derivative regulation is becoming the litmus test of regulatory reform. If the provisions stay, it will be a sign that broader interests and democratic forces will prevail over special and money interests.


More Stiglitz:

I strongly support the passage of the derivatives and swaps regulation sections of the Senate Financial Reform Bill and especially Section 716 (Prohibition Against Federal Bailouts of Swaps Entities). If the Senate fails to pass strict regulatory oversight over dangerous over-the-counter derivatives and swaps, then the U.S. economy will continue to be vulnerable to significant financial risks.

Many economists agree that the unregulated, over-the-counter derivatives market played a key role in transforming a financial downturn into a global economic calamity. The derivatives regulation amend-ments that Senators Lincoln and Dodd have incorporated into the Restoring Financial Stability Act of 2010 bring a critically important measure of regulation over dangerous derivatives and swaps prod-ucts by requiring: exchange-trading and clearing of most standard derivatives; the prudential regulation of major swaps dealers, including capital reserves requirements and business conduct rules; the spin-ning off of risky swaps desks from the systemically risky banks; and the ability of regulators to ban swaps that lead to financial instability or have no economic purpose.


In addition, look at the new powers given to the FDIC that were not covered by Glass-Steagall:

  • Funeral Plans: Requires large, complex financial companies to periodically submit plans for their rapid and orderly shutdown should the company go under. Companies will be hit with higher capital requirements and restrictions on growth and activity, as well as divestment, if they fail to submit acceptable plans. Plans will help regulators understand the structure of the companies they oversee and serve as a roadmap for shutting them down if the company fails. Significant costs for failing to produce a credible plan create incentives for firms to rationalize structures or operations that cannot be unwound easily.

  • Liquidation: Creates an orderly liquidation mechanism for FDIC to unwind failing systemically significant financial companies. Shareholders and unsecured creditors bear losses and management and culpable directors will be removed.

  • Liquidation Procedure: Requires that Treasury, FDIC and the Federal Reserve all agree to put a company into the orderly liquidation process because its failure or resolution in bankruptcy would have adverse effects on financial stability, with an up front judicial review.

  • Costs to Financial Firms, Not Taxpayers: Taxpayers will bear no cost for liquidating large, interconnected financial companies. FDIC can borrow only the amount of funds to liquidate a company that it expects to be repaid from the assets of the company being liquidated. The government will be first in line for repayment. Funds not repaid from the sale of the companys assets will be repaid first through the claw back of any payments to creditors that exceeded liquidation value and then assessments on large financial companies, with the riskiest paying more based on considerations included in a risk matrix

  • Federal Reserve Emergency Lending: Significantly alters the Federal Reserves 13(3) emergency lending authority to prohibit bailing out an individual company. Secretary of the Treasury must approve any lending program, and such programs must be broad based and not aid a failing financial company. Collateral must be sufficient to protect taxpayers from losses.

  • Bankruptcy: Most large financial companies that fail are expected to be resolved through the bankruptcy process.

  • Limits on Debt Guarantees: To prevent bank runs, the FDIC can guarantee debt of solvent insured banks, but only after meeting serious requirements: 2/3 majority of the Board and the FDIC board must determine there is a threat to financial stability; the Treasury Secretary approves terms and conditions and sets a cap on overall guarantee amounts; the President activates an expedited process for Congressional approval.


Something the bill does for the first time ever, regulate hedge funds:

Raising Standards and Regulating Hedge Funds

  • Fills Regulatory Gaps: Ends the shadow financial system by requiring hedge funds and private equity advisors to register with the SEC as investment advisers and provide information about their trades and portfolios necessary to assess systemic risk. This data will be shared with the systemic risk regulator and the SEC will report to Congress annually on how it uses this data to protect investors and market integrity.

  • Greater State Supervision: Raises the assets threshold for federal regulation of investment advisers from $30 million to $100 million, a move expected to significantly increase the number of advisors under state supervision. States have proven to be strong regulators in this area and subjecting more entities to state supervision will allow the SEC to focus its resources on newly registered hedge funds.


So the current bill separates commercial from investment banking and in addition, regulates hedge funds for the first time and empowers the FDIC to deal with large complex institutions that pose a systemic risks, which Glass-Steagall did not address.


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uponit7771 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:24 AM
Response to Original message
1. It's best if the big banks have a gun to their own heads instead of the tax payers
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OHdem10 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:30 AM
Response to Reply #1
2. Glass-Steagall 's primary objective is to separate Taxpayers
Deposits so the gamblers cannot use them. Most importantly
if there is failure, the Taxpayers are protected and kept whole.
The Gambler do not take the whole system dwon.

I never thought Glass-Steagall had anything to do with too big
to fail.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:40 AM
Response to Reply #2
4. "I never thought Glass-Steagall had anything to do with too big"
It doesn't, not in the context of the risk posed by the size of commercial banks, and that's how it's being represented.
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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:47 AM
Response to Reply #1
7. But they don't. The top six banks control more of the economy than ever at about 2/3
They have an even bigger gun than ever to the heads of the taxpayers.

I haven't a clue why the OP was inventing a sparring partner that conflates Glass-Stegall with breaking these behemoths up before they swallow up the entire economy and can never be leashed.

Clearly, there needs to be that firewall between investment/speculation/savings and loan but those divisions still have plenty of danger of an institution having to much of a grip on the pulse of the broader economy that leads to hostage situations and back door bailouts.

There are a lot of moving parts here and failure to deal with as many of them as can be gotten a hold on is absolutely critical to our national and personal well being.

The current system is suicidal and really should be demolished but at the very least it must be locked down tight or it will be our asses.

It's also insane to not be really proactive about at least shifting the balance of incentives toward investment and away from speculation or this economy is never going anywhere in any broad and real way.

The banks at this point are much more parasites than engines of the economy and while that dynamic is allowed to stay in place, we're dooming ourselves to more of the same and worse than we've had the past generation and particularly the last ten years or so.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:54 AM
Response to Reply #7
9. "why the OP was inventing a sparring partner that conflates Glass-Stegall with breaking...behemoths"
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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:38 AM
Response to Reply #9
13. Yeah, who is making that case? Are you using Five Plane McShame as a punching bag
substitute for the audience here?

I'm not even sure from his quote that he is making that particular case, he may be but old Keating Five there understands economics on a level I'd describe as in the bottom 20% of the country or worse. He so doesn't get it that I don't get going out on a limb with one of his muddled statements to create a strawman to set up an OP.

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:57 AM
Response to Reply #13
14. "going out on a limb with one of his muddled statements to create a strawman to set up an OP."
One on One with Michael Moore

DA: I see, I see. This film really takes on a lot of the abuses of the financial sector and financial sector reform is one of the things that Democrats are going to have to consider as soon as health care reform is done. Did you see Senator Dodds proposal that he put out yesterday about his financial sector reform bill?

MM: Yes, I did.

DA: And what are your thoughts?

MM: Weak. Ineffective. More of the same. And the typical thing that Democrats often do is to create a gentler version of something that the Republicans would actually propose. So it was no surprise that with Shelby, the Republican from Alabama, said that he agreed with about 80 percent of it. I mean, that should be the first clue, if a Republican says they agree with 80 percent of your bill, then you probably got about 80 percent of it wrong.

DA: What is not in there that should be in there, in your view?

MM: Well, theres no -- Paul Volcker -- the so-called Volcker Rule to prevent "too big to fail"? Its in there. So thats one of the primary qualities of the crash, and Dodd, yesterday, hes sitting in front of the microphone and said this has never been what we have, too big to fail. Well, thats not true. Unless you put actual specific limits and caps on how big they can get, you know, Dodd says its not going to happen again, because there will be provisions in there to supply more funds for something to prevent them to fail. In other words, just meaning more bailout money. Weve done the worst thing possible as far as Wall Street. Its okay, if you play fast and loose with our money, well give you more money if you lose that money.

DA: Right. One of the things that isnt in there that I know a lot of progressives have been clamoring for is some sort of reinstitution of Glass-Steagall. Is there any hope for anything like that, and is that something that you would agree with and support?

MM: Absolutely. In fact, thats all Dodds bill should have said. Lets go reinstitute Glass-Steagall. End of story. Because of Glass-Steagall, from World War II to the late 80s, we did not have one single banking disaster. And then as Reagan started to take regulations away, first the Savings & Loan crisis, then Clinton takes more regulations away, then we had the hedge fund meltdown in the late 90s. And then of course Bush came in and never met a regulation that he didnt want to massacre. And we ended up with a complete crash in September of 08. So, you know, until we go back to having these tight regulations on the banks, and then the watchdog agency that Dodd has in his bill, its part of the Fed. Excuse me?



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brentspeak Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:39 AM
Response to Original message
3. Who made the claim that Glass-Steagall addressed "too big to fail"?
"The claim made by some that reinstating Glass-Steagall..."

WHO made that claim? Names?
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:43 AM
Response to Reply #3
5. So you agree that it doesn't?
You think Krugman was presenting a strawmam argument?

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brentspeak Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:44 AM
Response to Reply #5
6. Will you answer the question?
Once again: Who made the claim that Glass-Steagall specifically addressed "too-big-to-fail"?
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:50 AM
Response to Reply #6
8. Yes:
Edited on Wed Jun-30-10 10:51 AM by ProSense
Sens. Cantwell & McCain Lead Senate Effort to Reinstate Glass-Steagall

Throughout the financial crisis one law has been cited over and over as a main cause of the collapse and, more significantly, the resulting bailouts of too big to fail banks. That law is the Gramm-Leach-Biley Act, which repealed a New Deal-era financial regulatory rule known as the Glass-Steagall Act, which was signed into law by FDR to keep regular commercial banks separate from Wall Street investment banks. The law was repealed in 1999 by Bill Clinton; the pen that signed the law to repeal it is now hanging as a trophy in the halls of Citigroups corporate headquarters.



Under our proposal, too-big-to-fail banks would be forced to return to the business of conventional banking, leaving the task of risk taking or management to others, McCain, an Arizona Republican, said at a Washington news conference. A former bank regulator said splitting up companies is crazy.

link



Now you: Do you agree that Glass-Steagall didn't address too big to fail?


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brentspeak Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:59 AM
Response to Reply #8
10. So McCain, possibly, made a connection between Glass-Steagall and "too big to fail"
Edited on Wed Jun-30-10 11:00 AM by brentspeak
John McCain is your example of a whole bunch of people who are out there claiming Glass-Steagall specifically addressed 'too big to fail'.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:14 AM
Response to Reply #10
11. Go ahead ignore all the other statements.
Edited on Wed Jun-30-10 11:25 AM by ProSense
McCain is a person, so is Cantwell and Krugman.

You are trying to argue that linking too big to fail with Glass-Steagall is a strawman in the face of evidence that people have made the claim, but you are avoiding the question: Do you agree that Glass-Steagall had nothing to do with too big to fail?

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 01:30 PM
Response to Reply #10
15. Here's
another

Still waiting for your answer to the question.

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:27 AM
Response to Original message
12. Any comments from others who disagree?
Care to challenge the claim that Glass Steagall has nothing to do with the size of commercial banks?

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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 01:46 PM
Response to Reply #12
17. Nobody disagrees except MAYBE McSame. Cantwell and Krugman CLEARLY know the difference
and perhaps Micheal Moore used the label to describe a clearly different concept but it's hard to say.

You are underhandedly trying to diminish the importance of these two pieces of the puzzle by making an out of the blue case that a few people are possibly conflating them.

Trying to pretend Krugman doesn't understand the difference is absurd. You are free to disagree with his arguments and conclusions but it's fucked up to pretend he is stupid and doesn't understand the basics.

You are failing to sell this bill as a cure for the systemic issues that led to the current pass.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 01:54 PM
Response to Reply #17
18. "Trying to pretend Krugman doesn't understand the difference is absurd." What?
"You are free to disagree with his arguments and conclusions but it's fucked up to pretend he is stupid and doesn't understand the basics."

Who said Krugman doesn't understand or that I disagree with him? His point in the OP supports clearly states that he understands.

Krugman:

Im a big advocate of much strengthened financial regulation. One argument I dont buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, its just not possible...Bear in mind that this was in the days before the repeal of Glass-Steagal, before finance got so big and wild; the New Deal regulations were mostly still in place. Yet even then major banks were too big to fail.

So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was.


You are the one claiming the no one made the argument, which Krugman clearly is responding to. You are the one claiming it is a strawman.

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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 03:02 PM
Response to Reply #18
19. No he's not he is arguing against ending too big to fail which is a different matter
than what you were supposedly going on about. The Krugman blurb was non-germaine to your premise and was not weighed.

You then in a later post, lumped McShame, Cantwell, and as I read it Krugman into a camp that was mixing up the two distinct issues and now you have spun the whole thing around to being about Krugman (which if I misinterpreted your use of him in the discussion was misunderstood, then I certainly apologize for that piece but not the thrust) who had no relevance to the basic point other than he was discussing the issue and is not in favor of such dramatic action ( and I disagree, I get his point but definitely disagree).

There's nothing wrong with arguing multiple separate but related points but you could be more clear on what your premise actually is. You consistently were arguing about the confusing and merging of too big to fail and Glass-Steagal and now are flipping to the validity of ending too big to fail which leads me to believe your actual point is to pooh poo the need for either measure and shut down any detraction from the bill by painting any such opposition as daft.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 03:13 PM
Response to Reply #19
20. What is it about what Krugman said related to the point that you don't get
Edited on Wed Jun-30-10 03:15 PM by ProSense
One argument I dont buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail.

The point is that finance is deeply interconnected, so that even a moderately large player can take down the system if it implodes. Remember, it was Lehman not Citi or B of A that brought the world to the brink.


He is making the point that it was not commericial banks, but interconnected financial institutions that led to the crisis, which is my point exactly. Still, the bill goes further to address the concerns of the systemic risks he said existed prior to the repeal.

He doesn't buy the too big argument. It's the linking of commercial and investment banks that needs to be addressed.

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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 03:55 PM
Response to Reply #20
21. I don't understand what it has to do with conflating too big to fail with Glass, Pro
His statements are perfectly clear, agree or not, why it was relevant to the original point is the elusive part.

The original argument (and the one you engaged in, mind you) was that people were conflating Glass and ending to big to fail, which is a mix of irrelevant and strawman because practically no one anywhere was making such statements.

So, my question isn't about what anyone stated or subject matter. My question is what is the intent of your taking this tact other than to discredit proponents of either corrective actions or was that the intent?

What are you up to exactly? I don't think the interconnectedness of the banks because that is yet another argument aside conflation of remedies.

All off these are factors (minus the irrelevant concern about mixing Glass-Steagall and ending too big to fail) and much more should be addressed in order to end the parasitical relationship the banks have on the economy, restore lending and investment, foster broad based prosperity, and long term stability.



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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 04:05 PM
Response to Reply #21
22. Ok, you clearly don't understand.
Krugman: "So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was."

Pursuing the goal of breaking up the big banks had nothing to do with anything that remotely ever existed.

"I don't think the interconnectedness of the banks because that is yet another argument aside conflation of remedies."

The interconnectedness of the banks refer to the linking of commericial and investment banks, that is traditional banking and the other shadowy institutions. It's not another agrument. It is the point.

"All off these are factors (minus the irrelevant concern about mixing Glass-Steagall and ending too big to fail) and much more should be addressed in order to end the parasitical relationship the banks have on the economy, restore lending and investment, foster broad based prosperity, and long term stability."

First, you keep saying that despite the fact that you have dismissed statements to the contrary. Second, it isn't irrelevant. The repeal gave rise to the large complex institution. Glass-Steagall addressed keeping them separate. It did not address the risks associated with systemic risks posed by large commercial banks.

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TheKentuckian Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 04:43 PM
Response to Reply #22
23. Again, I totally understand his point. your intent of adding it to what you argued
Edited on Wed Jun-30-10 04:45 PM by TheKentuckian
was a problem with mysterious people conflating restoring Glass-Steagal with efforts to limit the size of financial institutions by methods like capital requirements or actual hard caps on percentage of the economy or how much money they can have before forced spin off.

Obviously, a new Glass would attempt to work on the interconnectedness issue by splitting investment banking and savings and loan/"traditional" banking. Opening that can of worms has created other ties that need to be addressed as well.

I'm not mixing the two separate remedies for two distinct issues. I never asserted that Glass limited the size of the intuitions (though the division of the commercial and investment businesses it might be argued helped somewhat).

The desire to whittle down the percentage of the economy institutions hold is not restorative but a new step that many feel is needed. Almost all of us who believe this ALSO are in favor of a 21st century Glass-Stegall but we do not argue they are one and the same which was the premise forwarded by your OP and subsequently argued by you throughout the thread.

Maybe it would be fruitful for you to argue out of your own head so your argument(s) are in one voice and cohesive rather than cutting, pasting, and hyperlinking while mixing in perhaps a little of your own commentary.

I cannot be circled by many and none for long.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 04:54 PM
Response to Reply #23
24. "mysterious people conflating restoring Glass-Steagal "
Even if you ignore the all the other statements indicating otherwise, McCain is actually a real person. I could also argue that the OP doesn't say Democrats are making the claim. You are simply trying to obfuscate.

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Davis_X_Machina Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 01:31 PM
Response to Original message
16. Glass Steagall quickly became the...
...public option of financial regulation.

A shibboleth.
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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 05:58 PM
Response to Original message
25. Even if Slappy McSame got the purpose of Glass confused with
too big to fail, why act as though there's such general and widespread confusion about this that you felt compelled to start a thread about it here? More importantly, what McSame has to say about it doesn't effect the necessity of reinstating Glass-Steagall and include it in any serious financial reform bill.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:23 PM
Response to Reply #25
26. It wasn't just McCain, but OK, what is Robert Reich talking about:
Reich in 2009: Breaking Up the Big Banks, and Why Congress Won't Do It

And now there are five -- five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called"talent," and raking in huge profits. The biggest difference between now and last October is these biggies didn't know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who's just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can't say no, the biggies will drive even faster now, taking even bigger risks.

<...>

There should be an orderly process for putting big failing banks out of business. But this isn't nearly enough. By the time a truly big bank gets into trouble -- one that poses a "systemic risk" to the entire economy -- it's too late. Other banks, competing like mad for the same talent and profits, will already have adopted many of the excessively-risky banks' techniques. And the pending failure will already have rocked the entire financial sector.

Worse yet, the Administration's plan gives the big failing bank an escape hatch: The receiver might decide that the bank doesn't need to go out of business after all -- that all it needs is some government money to tide it over until the crisis passes. So the Treasury would also have the authority to provide the bank with financial assistance in the form of loans or guarantees. In other words, back to bailout. (Historical footnote: Summers and Geithner, along with Bob Rubin, while at Treasury in 1999, joined Greenspan in urging Congress to repeal Glass-Steagall. The four of them -- Greenspan, Summers, Rubin and Geithner also refused to regulate derivatives, and pushed Congress to stop the Commodity Futures Trading Corporation from doing so.)

Congress is cooking up a variation on the "resolution" idea that would give the Federal Deposit Insurance Corporation authority to trigger and handle the winding-down of big banks in trouble, without Treasury involvement, and without an escape hatch.

Needless to say, Wall Street favors the Administration's approach -- which is why the Administration chose it to begin with. If I were less charitable I'd say Geithner and Summers continue to bend over bankwards to make Wall Street happy, and in doing so continue to risk the credibility of the president, as well as the long-term financial stability of the system.

Wall Street could live with the slightly less delectable variation that Congress is coming up with. But Congress won't go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street's lobbyists and lackeys are all over Capitol Hill.

Whether it's using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up -- and soon.


Is he talking about commericial banks or investment banks? He mentions the FDIC, but that is for commercial banks.

How does reinstating Glass-Steagall address systemic risks?





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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:38 PM
Response to Reply #26
28. So Robert Reich is the other one who is confused about the
purpose of Glass-Steagall. If you want to maintain that opinion go right ahead.

How does reinstating Glass-Steagall address systemic risks?
Risk your own money.

The big predator banks also need to be broken up with antitrust laws.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:48 PM
Response to Reply #28
31. "How does reinstating Glass-Steagall address systemic risks? Risk your own money."
Edited on Wed Jun-30-10 06:49 PM by ProSense
That's your answer?

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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 07:11 PM
Response to Reply #31
32. That's the basic idea. You want me to post a link?
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:08 PM
Response to Reply #32
36. No, a comment with substance and a point would be good. n/t
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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 07:13 PM
Response to Reply #31
33. I'd ask Robert Reich but you've convinced me
he'd give me the wrong answer.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:10 PM
Response to Reply #33
37. So in this scenario only everyone quoted in the OP is wrong?
Is it possible Reich is wrong?

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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 07:05 PM
Response to Reply #37
61. You are saying Reich doesn't know the purpose of Glass Steagall
and I'm saying you're nuts.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:32 PM
Response to Reply #25
27. Here is Reich in April
Reich

A fight is brewing in Washington or, at the least, it ought to be brewing over whether to put limits on the size of financial entities in order that none becomes too big to fail in a future financial crisis.

<...>

Even if the resolution authority were combined with an array of new regulations designed to cover all the shadow banking operations of the giant banks requiring that they put up more capital and thereby limit their leverage theres no way such regulations can succeed. The giant banks already hire fleets of lawyers, accountants, and financial entrepreneurs to find loopholes in every existing regulation.

<...>

By all means, give regulators resolution authority and also impose the tightest regulations possible. But Congress and the White House shouldnt stop there. Limits should be placed on how big big banks can become.

How big? No one has been able to show significiant efficiencies over $100 billion in assets. Make that the outside limit.

To be sure, smaller banks might still be subject to runs. Thats why the Federal Deposit Insurance Corporation was created in the 1930s to ensure depositors in the event a bank gets into trouble, so they wont have to run to protect their savings. And why the Glass-Steagall Act was passed to separate commercial banking (where depositors put their money) from investment banking (where betting is done). We could expand insurance to certain categories of bank creditor, and we should resurrect Glass-Stagall.

But the only way to make sure no bank it too big to fail is to make sure no bank is too big. If Congress and the White House fail to do this, you have every reason to believe its because Wall Street has paid them not to.



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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:40 PM
Response to Reply #27
29. Look man, I don't get paid for this. State your point here.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 06:48 PM
Response to Reply #29
30. Good thing, short on facts. n/t
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hulka38 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 07:20 PM
Response to Reply #30
34. Short on time, not facts and your links are a red herring.
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depakid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 08:29 PM
Response to Original message
35. ....
:rofl:
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:11 PM
Response to Reply #35
38. Fascinating response.
Had nothing, huh?

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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:27 PM
Response to Reply #38
39. Glass Steagal addressed enough that there was no major
collapse of the U.S. economy until AFTER it was rescinded with a Republican 'reform' bill signed on to by a majority of Democrats and Democratic president. Had Glass Steagal remained intact, Enron could not have happened.

Rescinding regulatory bills like Glass Steagal was never the answer to dealing with other problems, such as 'too big to fail'. It should have been left intact and other legislation added to deal with problems as they developed.

But, sadly, as we all know now, only SEVEN DEMOCRATS voted against Gramm/Bliley and one Republican. Had that been today, all eight of them would have been slammed on this board because a Democratic President signed that disastrous legislation into law.

Dorgan explained then, as Feingold is doing now, what he believed would happen once Gramm's bill went into effect.

Then years later he was proven to be correct. I doubt it will take ten years before Feingold is proven to be correct.

I suspect you would have been pointing out how Gramm/Blilely was a 'good bill' because Clinton won on protecting the CRA which Republicans were targeting, and people like me would have been trying to get you to understand that the bill was a disaster and there were other ways of protecting the CRA.

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:36 PM
Response to Reply #39
40. So you're saying that all that needs to happen is reinstating Glass-Steagall?
You're agreeing with Michael Moore who states: "In fact, thats all Dodds bill should have said. Lets go reinstitute Glass-Steagall. End of story."

Is that what you are saying?


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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:39 PM
Response to Reply #40
41. So you don't read what people write? The answer to your
question is in my above post which you clearly did not read ~ no wonder you are so short on facts. Reading is vital to grasping facts.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:52 PM
Response to Reply #39
43. "It should have been left intact and other legislation added to deal with problems"
Edited on Wed Jun-30-10 09:52 PM by ProSense
Sorry, I missed that. Yes, it should never have been repealed, but it was, and now it has to be dealt with.

As the OP points out, the current bill not only includes Glass-Steagall provisions, it also addresses issues that Glass-Steagall didn't.

Also, don't forget that the Savings and Loan crisis occured before Glass-Steagall was repealed.

You mentioned Dorgan, but unlike Feingold, he is voting for the bill.

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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:29 PM
Response to Reply #43
49. I'm glad we agree that it should not have been repealed.
And when it was, the Gramm/Blilely Bill was touted, as this one is, as a bill that had protections in it against the kind of corruption that Glass/Steagal was meant to prevent. As we know now, that was not the case.

As for the Savings and Loan crisis, there were laws under which people were held accountable when they were caught. So far, no one has been accountable for the massive corruption that has toppled the country's economy under Gramm/Blilely that I am aware of.

As for moving on from the rescinding of Glass/Steagal, I disagree. There are lessons to be learned from what happened, from the drive for more deregulation.

After what just happened in this country, and around the world, this was the time to get a bill that would ensure that there are no loopholes for Wall St. to jump through. The country has been waiting for such a bill and for some accountability. This bill has enough loopholes that more corruption is almost guaranteed as happened, despite claims to the contrary, after Gramm/Blilely.

As for Dorgan signing this bill, he is leaving the Senate, having been betrayed on the Health Care Bill and having seen his predictions come true on Gramm/Blilely, I don't blame him for simply accepting that the system is so corrupt this may be the best we can get as he knows his colleagues are not going to fight for anything better.

So now it's up to the people. We know now how things are. And we, the people, have to decide what to do about it. Dorgan tried and failed, not once but twice on some very important legislation. He was right both times. I hope he puts his efforts into finding a way to effect real change away from the toxic and corrupt atmosphere of DC where too much Wall St. money is still buying Congress.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:47 PM
Response to Reply #49
51. "As for Dorgan signing this bill, he is leaving the Senate"
Boxer is also voting for it, and she was among the eight who voted against the conference report.

"As for moving on from the rescinding of Glass/Steagal, I disagree."

I didn't say move on. The issues have to be addressed, including regulatory failures and other issues outside Glass-Steagall's reach.



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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:00 PM
Response to Reply #51
52. Boxer is up for re-election. She knows
that not voting for what is being called a regulatory bill, would harm her chances of re-election this year. She probably wouldn't get much support from the leadership of the party if she did not. She can and probably will use it to attack her opponent with, claiming that Republicans don't want Wall St. regulated. What she actually thinks about it, I have no idea. But I doubt anyone who opposed Gramm/Blilely could be happy about this bill except as a first step towards reigning in corruption on Wall St.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:32 PM
Response to Reply #52
54. Feingold is up for re-election too.
Edited on Wed Jun-30-10 11:32 PM by ProSense
There is no reason to join the Republicans in filibustering this bill.


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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 01:45 AM
Response to Reply #54
56. Feingold's seat is more secure than Boxer's. And he is doing
the right thing. Sometimes by accident, the Republicans find themselves fighting for what they actually want, just because it's a Democrat doing it.

I never pay attention to what Republicans do, and I suspect neither do people like Feingold, they simply focus on what is right. You epitomize all that is wrong with democrats and why they are so defeatist and unable to get real reform done. They worry more about Republicans and what they think, what they are doing, than they do about the people who elected them and what is right for the country. 'Oooh, what will the righties say about us if we act mean'. I for one believe that Republicanism is irrelevant and ought to be treated that way, as if they don't exist.

So, save that over-used stale talking point, it is meaningless to anyone with two brain cells working.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 08:46 AM
Response to Reply #56
58. "Feingold's seat is more secure than Boxer's." Really?
Feingold is in a neck and neck primary with a teabagger.

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sabrina 1 Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 07:29 PM
Response to Reply #58
62. Feingold in a primary with a tea-bagger? We have
democratic tea-baggers? :eyes:
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depakid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:47 PM
Response to Reply #38
42. Theater of the absurd
some posts just leave me speechless.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 09:54 PM
Response to Reply #42
44. Why not admit that you cannot refute the point? n/t
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depakid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:03 PM
Response to Reply #44
45. LOL- No sense in that- you'd defend or promote anything!
Edited on Wed Jun-30-10 10:04 PM by depakid
As far as I can tell- there aren't any limits or barriers to what you'll post on any given day.

btw: the matter has already been refuted by Simon Johnson and others- and posted right here on this forum- along with responses acknowledging it.... from guess who?

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:08 PM
Response to Reply #45
46. "the matter has already been refuted by Simon Johnson and others" Link?
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depakid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:13 PM
Response to Reply #46
47. Oh please...
Edited on Wed Jun-30-10 10:13 PM by depakid
Go over to the Baseline scenario and find it for yourself.... or run a search right here on this forum.

This reminds me of the public option- which you dropped like a hot potato after months of "advocating" and beating single payer groups over the head with it.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:27 PM
Response to Reply #47
48. Let me save you the trouble
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depakid Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 10:40 PM
Response to Reply #48
50. Oh boy, more stand for nothing blue links!
:rofl:

If you spent half the time actually learning about the things you link to, rather than trying to beat people over the head with them- you might actually have some credibility and enjoy some personal and intellectual growth. But unfortunately, that doesn't seem to be your gig.
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:35 PM
Response to Reply #50
55. "If you spent half the time actually learning about the things you link to"
Edited on Wed Jun-30-10 11:35 PM by ProSense
as opposed to responding to every post with a non response or a laughing smiley?

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Forkboy Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 11:07 PM
Response to Original message
53. man, you really hate Clinton!
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Beacool Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 10:00 AM
Response to Reply #53
59. Hear, hear!!!
Forky, I knew we would agree on something one of these days!!!!

:D
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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 10:04 AM
Response to Reply #59
60. Imagine you agreeing with that comment. What does the OP have to do with Clinton? n/t
Edited on Thu Jul-01-10 10:04 AM by ProSense
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boppers Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jul-01-10 02:12 AM
Response to Original message
57. Thanks for the pointers.
I think folks have become hung up on the "Glass-Steagall" brand, rather than the substance of a given piece of legislation.
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