Eliminating Glass-Steagall: A Good Idea?

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Eliminating Glass-Steagall

A Good Idea

The stock market crash of 1929 has been reviewed numerous times since its occurrence , and retrospective analyses differ on the causes , but at least some of those who have studied the market 's demise blame the banking practices of the time

Fundmental to an understanding of the passage of the Glass-Steagall Act is the fact that by 1933 the U .S . was in one of the worst depressions of its

history . A quarter of the formerly working population was unemployed . The nation 's banking system was chaotic . [ .] Congressional hearings conducted in early 1933 seemed to show that the presumed leaders of American enterprise - the bankers and brokers - were guilty of disreputable and seemingly dishonest dealing and gross misuses of the public 's trust (qtd . in Understanding

In essence , the nation 's bankers had been caught gambling with the hard-earned savings of their clients , and the bankers had had a long costly losing streak

Moving to upend the toppled American economy , the Glass-Steagall Act was a bookkeeping provision that allowed the Treasury to balance its account (qtd . in Understanding . Coupled with the Bank Act of 1933 which erect[ed] a wall between banking and [the] securities business ' the nation 's economy made a gradual , upward turn (qtd . in Understanding Keeping in mind that the America of the Crash is not the America of today , the basic restrictions contained in the Glass-Steagall Act seem rational however , as time passed , it appeared that what began as a protective mechanism might actually be prohibiting banks from providing the best service for clients and prohibiting their ability to compete with foreign-market banking ( Long Demise

Those who gradually came to oppose the Glass-Steagall Act worked toward loosening its hold , and Section 20 became the favorite place for banks investors , and politicians to play a jump-rope game of find-the-loophole . Although one of the main protections provided by the Act was a separation of two ideals : a culture of risk which was the securities business , and a culture of protection of deposits which was the culture of banking ' eventually , a 5 allowance in investment by banks in the securities business was raised to a 10 allowance , and ultimately , this percentage increase led to the heaviest lobbying that resulted in the Act 's eventual repeal by President Clinton in 1999 ( Long Demise

Whether or not the elimination of the Glass-Steagall Act was good or bad certainly falls under the purview of only time being able to tell If the Nation were to experience another market crash , would banking survive ? Would the FDIC save the day ? Would the ability of banks to diversify in the post-Glass-Steagall Act era prove a saving grace Let 's hope we don 't have the opportunity to find out

There are a few truths that can be examined even absent a modern-day Crash . Going back to the beginning , both Glass and Steagall had personal reasons for working to make the Act law . Glass was a senator a former Treasury secretary , Father of the Federal Reserve System and a critic of banks that engaged in what he considered the risky business of investing in stocks . He wanted banks to stick to commercial lending (qtd . in Understanding . Conversely , Steagall had little interest in separating banking from Wall Street , but signed on to the bill after Mr . Glass agreed to attach Mr . Steagall 's amendment which authorized bank deposit insurance for the first time (qtd . in Understanding . Neither of these men was truly altruistic in his work

Moving forward in history , President Clinton 's struggle with the Act its modifications , and ultimately its repeal were influenced by the political climate in which he worked . In the 1997-98 election cycle the finance , insurance , and real estate industries , [ .] , spend more than 200 million on lobbying and makes more than 150 million in political donations (Long Demise

Finally , the Citicorp-Travelers merger effectively gives regulators and lawmakers three options : end [the Glass-Steagall Act] restrictions scuttle the [merger] deal , or force the merged company to cut back on its consumer offerings by divesting any business that fails to comply with the law ( Long Demise . Alan Greenspan is heavily involved and meetings with Federal Reserve officials and President Clinton are more-or-less ceremonial ( Long Demise

The common thread from the very beginning is greed . If it is true that banks were at least partially responsible for the Crash , then their shortcomings can be traced to questionable investments geared towards maximum profit at great risk to the bank 's citizen-clientele . The Glass-Steagall Act itself was a result of the merger of two men who had different , perhaps conflicting purposes that were in-part , selfishly motivated . As time progressed and the American economy improved changed , and needed to compete in the foreign market , loopholes in section 20 of the Act allowed banks to turn back down the path of more risky business . President Clinton weighed the political climate and waited for the right wind to blow , and he is assisted by aggressive lobbyists and their campaign contributions . Finally , the Act is repealed , and the Nation seems to have survived any immediate effects unscathed . The modern American pays greater attention to his finical position and protection and he self-diversifies , and a bank 's reputation has come to mean everything in today 's market , and that could be enough to motivate banks to regulate themselves (Heakal

The problem with all of this is that a bank has no real face , the FDIC has no real face , not even the government has a real face the real faces are meekly represented by every dollar and every penny placed by a citizen into the care of a financial institution , and if there is an occasion to prove or disprove the logic in repealing the Glass-Steagall Act , and that occasion exposes the decision as poor , the victims will again , be the citizens whose money and savings suddenly disappear Works Cited

Heakal , Reem . What Was the Glass-Steagall Act ' Investopedia .com 16 July 2003 . 13 Sept . 2006 br

The Long Demise of Glass-Steagall : A Chronology Tracing the Life of the Glass-Steagall Act , from Its Passage in 1933 to Its Death Throes in the 1990 's and How Citigroup 's Sandy Weill Dealt the Coup de Grwce PBS .org . 13 Sept . 2006

Understanding How Glass-Steagall Act Impacts Investment Banking and the Role of Commercial Banks ' 13 Sept . 2006 br

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