Today (May 11, 2012) JP Morgan Chase appears to have engaged in the same kind of behavior that lead to the 2008 meltdown and people are talking about reviving the Glass-Steagall Act. I thought I should repost this from March 2009.
Yesterday one of my Random Thoughts was to ask if anyone remember when banks were banks and stock brokers were stock brokers. A few hours later, Rachel Maddow had a piece on the Gramm Leach Bliley Act (GLBA) of 1999. According to the summary of the bill the first provision is
TITLE I — FACILITATING AFFILIATION AMONG BANKS, SECURITIES FIRMS, AND INSURANCE COMPANIES
Repeals the restrictions on banks affiliating with securities firms contained in sections 20 and 32 of the Glass-Steagall Act.
(The GLBA also did some good things like require lending in poor neighborhoods which began to end redlining, but that’s a whole different story and discussion. It also required ATM’s to post fees for use. And I need to confess that in 1999, Representative Bliliey was my Congressman.)
At the signing, by President Clinton, of the Gramm Leach Bliley Act Senator Phil Gramm said
“In the 1930s, at the trough of the Depression, when Glass-Steagall became law, it was believed that government was the answer. It was believed that stability and growth came from government overriding the functioning of free markets.
“We are here today to repeal Glass-Steagall because we have learned that government is not the answer. We have learned that freedom and competition are the answers. We have learned that we promote economic growth and we promote stability by having competition and freedom.
So it has taken about ten years to figure out Phil Gramm was wrong. We did not “..promote stability by having competition and freedom.”
The GLBA was what allowed AIG to go from insurance company to a financial behemoth “too big to fail”. It let CitiBank purchase Traveler’s Insurance and become CitiGroup.
Circling back to Rachel Maddow, her guest David Cay Johnson compared the lack of Wall Street regulation which was supposed to save tax payers money with deciding that we no longer needed the expense of traffic lights, speed limits and stop signs because drivers will regulate themselves.
My bottom line? We need to get back to some sensible regulations with proper funding of regulators. But will Phil Gramm’s sucessors – Eric Cantor and the other Republicans – understand that their essentially unregulated free market because government is bad mantra is what helped get us into trouble and brought us to the place where we are spending trillions to bailout the very companies that Gramm Leach Bliley helped to create.