by Sy Harding of Street Smart Report (www.streetsmartpost.com).
The Glass-Steagall Act was passed in the 1930’s to help prevent a recurrence of the 1929 market crash and the Great Depression. It provided strict separation of the activities of various types of financial firms, the overlapping of which had been significantly responsible for creating the late 1920’s market bubble and subsequent crash.
Under Glass-Steagall financial firms had to divest themselves of over-lapping operations and focus on their core business.
Basically, savings banks could take in deposits from customers and loan the money out in home mortgages, auto loans and other types of personal lending.
Commercial banks could handle deposits and checking accounts of businesses and make commercial loans.
Investment banks could provide investment banking services, including arranging for companies to go public, merger and acquisition activities, making bridge loans, etc.
Brokerage firms could handle investment services for investors.
Insurance companies provided insurance and annuities.
Real estate brokerage firms provided real estate services on a commission basis.
Mutual funds invested in stocks, bonds, or other assets and sold shares to the public to provide them with diversified portfolios.
The financial sector screamed and yelled, but the separations were made fairly quickly and enforced. And none of the dire consequences Wall Street firms warned would be the result if government set up such restrictions took place. All sectors of the financial system managed to flourish very well for the next 60 years under the separations and restrictions.
But in the late 1990’s, banks and insurance companies began looking over their walls in envy at the big profits that brokerage firms and mutual funds were making from the booming stock market. Brokerage firms looked over their wall at the profits that could be made from packaging home mortgages, auto loans, etc. into leveraged investment derivatives…
…in 1998 they began lobbying Congress, and bombarding the media with articles and interviews aimed at having the public accept the idea of tearing down the walls… Overnight the walls disappeared. Banks were suddenly in the brokerage business, introduced their own mutual funds, were neck deep in investment banking, had huge trading departments trading for their own profits, etc. Brokerage firms were providing home mortgages, packaging the mortgages of other lenders and selling them to investors, etc.
And we soon saw the results with the stock market bubble in 2000, and the subsequent real estate bubble just a few years later, and the near collapse of the entire financial system last year under the weight of all the toxic assets that had mushroomed on the balance sheets of all types of financial firms…
…Wall Street of course claims that the abolishment of Glass-Steagall in 1999 was a good thing, that it resulted in innovative investment changes that strengthened the economy and markets.
Huh? We’ve had two recessions and two severe bear markets since 1999, with buy and hold investors still way underwater over the last 10 years, consumers in worse trouble than they’ve been in since the great Depression, and the financial system near total collapse for the first time since the 1929 crash and its aftermath…
Can you identify all 4 portraits? (send to: pappajohn15@gmail.com)
