Wanna have some fun? I have an idea about how to “save” the banking industry. Through mergers and acquisitions, the banking cartel grew to become infallible. Dave Shafer pins the tipping point of this crisis to the repeal of The Glass-Steagall Act of 1933. I’m not so certain he’s incorrect.
The intention of The Glass-Steagall Act of 1933 was to avoid this:
Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks
Do the 1920’s sound like this decade? As Dave Shafer points out, the Gramm-Leach-Bliley Act of 1999 ENCOURAGED the financial behemoths explaining “economies of scale” as the primary reason for the repeal of Glass-Steagall. While financial institutions with strong technology infrastructures can reduce the cost of banking processing functions, the GLB act of 1999 discouraged what Greg Swann calls “flinty banking practices” and encouraged rampant speculation, this time in risky home loans rather than new stock issues.
We were so interested in free online banking that we fed the growing gorilla until he bloated to 1600 pounds. Today, we’re shocked that he busted out of the cage and is chewing up the zookeepers and zoo patrons.
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