BEAT THE PRESS (NYT) » BUSINESS
Glass-Steagall and the Economic Crisis
May 23, 2012 · 3 Comments
Source: Beat the Press
By Dean Baker:
Andrew Ross Sorkin seems to be very proud of himself for having figured out that Glass-Steagall would not have prevented the economic crisis that hit the economy in 2007 and is still causing tens of millions of people to be out of work or underemployed today. He is of course right, except most of us knew this 4 years ago.
The crisis, which is an “economic crisis” not a “financial crisis” was caused by the collapse of an $8 trillion housing bubble. This bubble was driving the economy by sparking both a construction boom and a consumption boom. When house prices came back down to earth, these sources of demand evaporated and there was nothing to replace them. It’s a fairly simple story for those of us who learned arithmetic back in third grade.
Glass-Steagall played no direct role in the crisis or the buildup to it. Nonetheless, it does get to heart of one of the big unnecessary freebies that the government gives to the financial sector. The point of the law was that if you held government guaranteed deposits then there should be restraints on the sort of risks you can take.
It is understandable that the spoiled brats who run big banks on Wall Street think that they should be able to get handouts from the government with no strings attached, but that is not the way a market economy is supposed to work. If the banks don’t want the government’s guarantees for its deposits no one is forcing them to take the guarantee. But, if they take the guarantee, then they don’t get to take big risks like Jamie Dimon’s big bet.
This tradeoff is pretty straightforward. Even an NYT business columnist should be able to figure it out.
By admin
Readers Comments (3)
Font Controller
LATEST TWEETS
Edward Snowden and Acts of Conscience by Daniel Warner http://t.co/MwUhIB6gNW - posted on 11/06/2013 07:54:57 - Cuban author Roberto Zurbano and “The New York Times”: Lost and Found in Translation http://t.co/yYbJrXhKOC @nytimes - posted on 10/06/2013 13:34:25
- Fear of mass resignation of journalists may have influenced Punch Sulzberger's decision to publish Pentagon Papers: http://t.co/Vkg8OwQrLg - posted on 07/06/2013 12:31:37
- “Going down in flames if that was required”: The Limits of Liberal Interventionism by Daniel Warner: http://t.co/3iNFyMrZ9H - posted on 07/06/2013 10:36:36
- The NYT and Chemical Weapons in Syria by Michael McGehee: http://t.co/xCdx2AS611 - posted on 07/06/2013 10:31:28
- James C. Goodale's Fighting for the Press: The Inside Story of the Pentagon Papers. Excerpted for NYTX: http://t.co/4x1iAEUEEv - posted on 06/06/2013 10:37:23
NEW: THE EXAMINATION PROJECT
Over the past year NYTX has been organizing large amounts of data to aid critical media literacy and to "press the press" on important matters that affect us all. Our "eXamination" project is a work in progress. It applies filters to the New York Times for fact-checking, source analysis, words, ads, assessment of NYT editors and writers, and much more. It presents a variety of frameworks through which to understand powerful media. Visit the project now. To support our work please make a donation.
WIKILEAKS & NY TIMES
GENEVA DATELINE
A single column capturing the collective contributions of Geneva, Switzerland based writers Daniel Warner, Eugene Schulman, Matthew Stevenson and others.
MOBILE APP
Mobile NYTX
Bookmark the page or add the NYTX icon to your Home screen. Enjoy!
Supported by Android, iPhone/iPad, BlackBerry.
WHAT?!?!?!?!?!!?!?!?!?!
“Glass-Steagall played no direct role in the crisis or the buildup to it. Nonetheless, it does get to heart of one of the big unnecessary freebies that the government gives to the financial sector. The point of the law was that if you held government guaranteed deposits then there should be restraints on the sort of risks you can take.”
Please do not spread this disinformation. Glass Steagall was slowly modified to allow products of the banks into the mainstream that were essentially just GAMBLING – said gently, “speculation”.
CDS, CDOs, Subprime Credit maneuvered in throughout the 80s and 90s.
The plan was to do again what happened in the late 20s. SO OBVIOUS.
Andrew Ross Sorkin – go to jail.
When you take in large amounts of wealth fronting as a “bank”, and then open the gateways for you to gamble with this money, you are gambling with an entire nation’s wealth. This is as clear as day.
“TOO BIG TO BE STUPID”
As Krugman has pointed out, Glass-Steagall became less effective with the rise of the shadow banking system, which rivaled in size the banking system regulated by G-S. As long as entities like AIG, which to my knowledge never came under the purview of G-S, is free to write credit default swap insurance on every risky transaction in the financial marketplace while keeping not nearly enough in reserves to pay out on even a small percentage of those policies, the default of which can disastrously affect TBTF banks, can do business without regulatory supervision, the liquidity of our economy will be at the mercy of some of humanity’s least trustworthy people. By all means, bring back G-S, but write it so that it includes all financial transactions entered into by TBTF banks; doing so will better protect the taxpayer and the liquidity of the markets the next time some marketing genius comes up with a brilliant idea like writing CDOs cubed on pieces of crap and selling them to greedy schmucks as if they were gold.