Congress actually does something about "too big to fail"

[bascule]

http://thehill.com/blogs/blog-briefing-room/news/72513-cantwell-sees-bipartisan-support-for-bank-breakup-bill

 

Wow! It appears there's a bipartisan effort underway to bring back the portions of Glass-Steagall which were repealed during a streak of deregulation in the late '90s. Glass-Steagall, among other things, firmly isolated banks from financial institutions.

 

Sen. Maria Cantwell (D-Wash.), who joined with Sen. John McCain (R-Ariz.) to sponsor a bill re-introducing the Depression-era law separating commercial and investment banking, said she's heard quite a bit of chatter about their effort.

 

"I think it's going to be a bipartisan issue," she said during an interview on MSNBC. "I think it's going to be an American issue."

 

Time magazine laid quite a bit of blame on the repeal of portions of Glass-Steagall for their role in the financial crisis:

 

http://www.time.com/time/nation/article/0,8599,1942834-4,00.html#ixzz0ZuWPP1Mw

 

Historian H.W. Brands of the University of Texas points to the demise of the Glass-Steagall Act in 1999 as an unfortunate tipping point of deregulation. Glass-Steagall, passed in 1933, separated investment banking and plain-vanilla banking, which some experts argued made markets safer. (Certain restrictions of Glass-Steagall were repealed to allow the merger of Citicorp and Travelers. Let's just say that didn't end well.) "That was the single moment when the seeds for the bad stuff were planted," says Brands. "There was a belief that technology, the Internet and financial instruments had changed things, and the ones selling this idea and these instruments were making a lot of money."

[Mr Skeptic]

I still stand by my previous suggestion: anyone who is too big to fail must pay into a bailout fund so they can be bailed out if they ever need it. Anyone else, not too big to fail.

[bascule]

Perhaps FDIC insured banks shouldn't be trading in derivatives, hmmmmmmmm?

[npts2020]

Perhaps FDIC insured banks shouldn't be trading in derivatives, hmmmmmmmm?

 

I can't believe they haven't stopped them from doing it already since that is still the biggest risk to world financial stability. Goes to just how much in the pocket of Wall Street and big finance our politicians really are.

[Severian]

If I were in charge I would implement a slightly different set-up. If a bank opts-in to a Glass-Steagall style regulatory system (so sticks to commercial banking and avoids risky investment banking, however that is defined) then their deposits would be guaranteed by central government. If they opt-out, they may still take deposits, but then their deposits are not guaranteed, and this should be made clear to depositors.

 

That way, you maintain a free-market, but you also provide an incentive for good practice. Perhaps, as Mr Skeptic suggested, you could also have an 'insurance' charge for the opt-in banks.

[Phi for All]

I'm becoming more skeptical of supposed bipartisan efforts, but in this case it seems like a move that would not only bring back a much needed regulation, it would also go a long way towards restoring consumer confidence in the banking system.

 

 

Perhaps FDIC insured banks shouldn't be trading in derivatives, hmmmmmmmm?

 

If I were in charge I would implement a slightly different set-up. If a bank opts-in to a Glass-Steagall style regulatory system (so sticks to commercial banking and avoids risky investment banking, however that is defined) then their deposits would be guaranteed by central government. If they opt-out, they may still take deposits, but then their deposits are not guaranteed, and this should be made clear to depositors.

Severian and bascule, two peas in a pod.

[Severian]

Severian and bascule, two peas in a pod.

 

I think even bascule can have sensible opinion sometimes.

[bascule]

I think even bascule can have sensible opinion sometimes.

 

Hehe

[npts2020]

What are the chances of this law passing any time within the next year or even before there is another financial "crisis"?