On Tue, Oct 21, 2008 at 2:22 PM, Patrick Bond <[EMAIL PROTECTED]> wrote: > David B. Shemano wrote: >> >> ... Please, somebody, give me a serious argument of how the repeal had >> anything to do with the present crisis. > > How about: it speeded up the perverse relationships between the real and the > financial sectors.
To be very specific, here are some direct consequences of Glass-Steagall that contributed to the present crisis: 1) Encouraged the creation of too-big-to-fail entities creating enormous moral hazard. Citi and Chase knew there was absolutely no way they would ever be allowed to fail. 2) Enabled insured depository institutions to enter the securitization business in a big way: normally a bank would make loans and an IB would pool, underwrite and distribute the securities. Now they were all done in the same institution which had obvious conflicts of interest that encourage inflated ratings. 3) SIVs would not have been possible under Glass-Steagall. 4) Related to (1): led to concentration of risk, and created correlations across different sectors e.g. commercial paper and real-estate. Incidentally the following report argues that the G-S Act was actually repealed in stages over a number of years: http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html -raghu. -- Confucius say, dirty book rarely dusty. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
