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The Truth About Glass-Steagall
The repeal of the Glass-Steagall Act has not been the source of U.S. financial woes, and if reinstated, would do little to prevent crises in the future.
The Glass-Steagall Act was enacted in 1933 in response to banking crises in the 1920s and early 1930s. It imposed the separation of commercial and investment banking.
In 1999, Glass-Steagall was partially repealed by the Gramm-Leach-Bliley Act. When the United States suffered a severe financial crisis less than a decade later, some leapt to the conclusion that this repeal was at least partly to blame. Indeed, both the Republicans and the Democrats included the reinstatement of Glass-Steagall in their 2016 election platforms
In The Repeal of the Glass-Steagall Act: Myth and Reality, a new study, international financial regulatory expert Oonagh McDonald argues against the idea that repealing Glass-Steagall caused the financial crisis, and that bringing it back would prevent future crises.
According to McDonald, despite calls to reinstate Glass-Steagall by both Republicans and Democrats, it is no silver bullet for our contemporary financial woes.
Instead, McDonald argues, Glass-Steagall left the U.S. with a fragile and expensive set of unit banks, without actually fixing the problems banks had experienced prior to 1933. After many years and changes to the structure of the banking and financial system, small sections of Glass-Steagall were repealed by the Gramm-Leach-Bliley Act (GLBA), without entirely dismantling it.
When the US experienced the financial crisis of 2008, both Republicans and Democrats leapt to the conclusion that the repeal of Glass-Steagall had caused the financial crisis. However, McDonald argues that these banking regulations could not have prevented the 2008 crisis and that the blame for bank failures lies elsewhere.
In the aftermath of the financial crisis, anger towards Wall Street and demands for further regulation of the banking system have once again become salient. The problem with current proposed reforms to the financial sector is the failure to address the real cause of past financial crises, instead simply attempting to placate justified public anger surrounding the issue with band-aid solutions – and still leaving the banking system susceptible to another crisis.
“By focusing the public’s anger on ‘greed,’ ‘overpaid bankers,’ and so-called ‘casino banking,’ politicians have been able to divert attention from the ultimate cause of the financial crisis, namely their belief that affordable housing can be provided by encouraging— or even obliging—banks to advance mortgages to homebuyers with low to very low incomes and requiring government-sponsored enterprises to purchase an ever-increasing proportion of such loans from lenders,” McDonald concludes. “If politicians continue to believe that affordable housing can only be provided in that way and act accordingly, no one need look any further for the causes of the next financial crisis.”
In short, the blame for the financial crises lies in the irresponsible policies pushed by politicians, not the actions of big banks.
Read the study….
http://catoinstitute.tumblr.com/pos...l&utm_source=facebook.com&utm_campaign=buffer
The repeal of the Glass-Steagall Act has not been the source of U.S. financial woes, and if reinstated, would do little to prevent crises in the future.
The Glass-Steagall Act was enacted in 1933 in response to banking crises in the 1920s and early 1930s. It imposed the separation of commercial and investment banking.
In 1999, Glass-Steagall was partially repealed by the Gramm-Leach-Bliley Act. When the United States suffered a severe financial crisis less than a decade later, some leapt to the conclusion that this repeal was at least partly to blame. Indeed, both the Republicans and the Democrats included the reinstatement of Glass-Steagall in their 2016 election platforms
In The Repeal of the Glass-Steagall Act: Myth and Reality, a new study, international financial regulatory expert Oonagh McDonald argues against the idea that repealing Glass-Steagall caused the financial crisis, and that bringing it back would prevent future crises.
According to McDonald, despite calls to reinstate Glass-Steagall by both Republicans and Democrats, it is no silver bullet for our contemporary financial woes.
Instead, McDonald argues, Glass-Steagall left the U.S. with a fragile and expensive set of unit banks, without actually fixing the problems banks had experienced prior to 1933. After many years and changes to the structure of the banking and financial system, small sections of Glass-Steagall were repealed by the Gramm-Leach-Bliley Act (GLBA), without entirely dismantling it.
When the US experienced the financial crisis of 2008, both Republicans and Democrats leapt to the conclusion that the repeal of Glass-Steagall had caused the financial crisis. However, McDonald argues that these banking regulations could not have prevented the 2008 crisis and that the blame for bank failures lies elsewhere.
In the aftermath of the financial crisis, anger towards Wall Street and demands for further regulation of the banking system have once again become salient. The problem with current proposed reforms to the financial sector is the failure to address the real cause of past financial crises, instead simply attempting to placate justified public anger surrounding the issue with band-aid solutions – and still leaving the banking system susceptible to another crisis.
“By focusing the public’s anger on ‘greed,’ ‘overpaid bankers,’ and so-called ‘casino banking,’ politicians have been able to divert attention from the ultimate cause of the financial crisis, namely their belief that affordable housing can be provided by encouraging— or even obliging—banks to advance mortgages to homebuyers with low to very low incomes and requiring government-sponsored enterprises to purchase an ever-increasing proportion of such loans from lenders,” McDonald concludes. “If politicians continue to believe that affordable housing can only be provided in that way and act accordingly, no one need look any further for the causes of the next financial crisis.”
In short, the blame for the financial crises lies in the irresponsible policies pushed by politicians, not the actions of big banks.
Read the study….
http://catoinstitute.tumblr.com/pos...l&utm_source=facebook.com&utm_campaign=buffer
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