Quote:
Originally Posted by Villages Kahuna
GLBA set the framework for the mega-financial institutions (which are now going broke)
I lived as a banker trying to make a living with a big bank which was constrained by Glass-Steagall. The legislation dated back to the post-depression years and really were badly out of date. Yes, the elimination of Glass-Steagall permitted commercial banks to compete in businesses otherwise prohibited, like stock brokerage, securities trading, etc. But even with the elimination of the "protections" provided by G-S, the big banks are still heavily regulated by the Federal Reserve.
The end result, even until today, is that very few, if any, of the big commercial banks have failed as the result of the new businesses which were permitted by GLBA. Lehman, Bear Stearns, Merril, etc. all failed or had to be taken over. But they were investment banks and never were regulated. Washington Mutual is thought of many as a "bank", but really is a savings and loan association and not regulated in the same way as the commercial banks.
I'd disagree, Steve. The enactment of GLBA in 1999 has had more of a favorable effect on our banking system than negative. If you'll notice, none of the big commercial banks are reported to be participating in the proposed bailout as the result. In fact my former bank, JPMorgan Chase, is strong enough to have purchased both Bear Stearns and WaMu (at a deep discount, of course), thereby avoiding the need for the Fed or FDIC to take them over and liquidate them.
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However, the number of banking mergers and acquisitions during the past few years have been very surprising. Mergers and acquisitions occur for a number of reasons, but so many large banks have been merged, indicating that the main reason is not the classical "elimination of competition," but pyramiding upward was happening (which eventually runs out).
The "big fish swallowing distressed littler fish" seems to have been the M&A policy, and we're now running out of "big fish" to do the eating. WaMu is a good example, as not that long ago one of the others (BankAmerica, Wachovia, Citicorp, etc.) would have acquired WaMu, another logo change would have happened, and the signmakers and business-card printers would have had a happy time.
Glass-Steagall may have been tight handcuffs, but it matched the philosophy that 95% of people don't need laws over them, but that 5% need all the controls in the world. GLBA worked fine for probably that 95% of the industry population which didn't try to scam the system. However, that 5% has hurt everyone.
WaMu is now toast. Wachovia is looking for a dance partner. And who is going to be next?
GLBA brought a lot of activity in that industry, but the loopholes in it were definitely exploited. So, any bailout without closure of those loopholes is a recipe for a repeat bailout need sometime later on.