“Being Too Big To Fail Is Okay After All?”
By Daniel at 15 June, 2009, 10:16 am
By Sy Harding - StreetSmartReport.com
“Government officials, regulators, and Congress told us what we already knew, that one of the biggest contributors to the financial crisis was that in the wild merger and acquisition binge of the 1990s some major financial firms had become “too big to fail”, too intertwined with each other to fail. They had to be bailed out or the collapse of one or two could collapse the entire financial system.
Of course what they didn’t say is that they, government officials, regulators, and Congress, made most of it possible, when in 1999 they rescinded the Glass-Steagall Act of 1933.
Investigations after the 1929 stock market crash had revealed widespread conflicts of interest and outright fraud in the activities of numerous banks that had also become involved in investment banking and brokerage activities. By 1933 a large portion of the commercial banking system had collapsed, and the Great Depression was underway.
As one of several actions taken to help prevent it from ever happening again the Glass-Steagall Act was passed, which separated commercial banking, investment banking, and brokerage activities, setting up substantial barriers between them. Savings banks could take in deposits from the public and make home mortgage loans. Commercial banks could take in deposits from corporations and make commercial loans. Investment banks could raise capital for businesses by taking them public, arrange mergers and acquisitions and so forth. Brokerage firms could provide a market for stocks and engage in brokering and investing in them.
It worked quite well for 70 years.”
The full article is at:
http://www.financialsense.com/fsu/editorials/harding/2009/0612.html
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