The Gramm-Leach-Bliley [GLB] act repealed Glass-Steagall [G-S] – which was the law of the land here in the USA from 1933 to 1999. G-S created the FDIC, and prohibited large private banks – whose primary business is the investment business – from receiving deposits from the public. In fact, one in five banks failed during the great depression, and Senator Carter Glass and Congressman from Alabama Henry Steagall – wanted to create a system to gain the public’s trust – so as to not ever have a run on banks [which received much coverage in the press - even without television or the internet].
In the nineteenth and early twentieth centuries [and after GLB], bankers and brokers were indistinguishable. Then, after the Banking Collapse of 1933, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the years prior. There were TWO G-S acts passed in 1933. The second G-S act was called the Treasury Act of 1933, and was passed on 16th of June, 1933. Hearings back in 1933 – revealed conflicts of interest and fraud in many banking institutions’ securities activities [the more things change, the more they stay the same]. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act – [only to be pissed away in 1999, by GLB].
Now what makes me shudder is the fact that today, Morgan-Stanley, Goldman-Sachs and American-Express are “banks”. Instead of bankruptcy [that these institutions much deserve], they get to dip into the Fed’s discount window – where they can get greenbacks for almost nothing in interest. Sure, the interest rates are set by the “market”, and the Fed only determines the discount rate, but the fact that a credit card company can dip into a near-infinite pool of taxpayer money is mind-bogglingly stupid.
The real reason that both either political party is getting away with this highway robbery is that highway robbers are not prosecuted these days – and instead, are rewarded with cabinet positions. Steal a hundred, and go to jail. Steal a hundred million, and you can write the next set of rules for G-S version 3. Version 3? In fact, I know a chap who fooled some very smart people and stole in excess of ten billion dollars. Since he will have a lot of time in his hands, I recommend that he author G-S v3.0.
But I digress…..
I think that it is the responsibility of the new administration – and all the peddlers of hope – to come together and pass a new set of laws that:
1. Reinstate G-S v3,0 – authored by the best hedge fund manager in NYC/Florida .
2. Split up Banking, Credit Card Issuing companies and Investment Banks.
3. If the Investment Banks or Credit Card Companies go under, so be it. Nobody is saving the jobs of much more deserving technology employees in the Bay Area – while incompetent Investment Bankers get their 2008 bonuses from TARP funds.
4. All “saved” banks need to forgive all loans for which they took money from TARP funds. Yeah – free houses to all those who had the sense to borrow from weak banks. After all – we want the fittest to survive – correct? The Banks which received TARP funds aren’t exactly the fittest.
5. No free $$$ to non-US banks.
Burn baby, burn!
© Bapcha’s Stocks, Feb 2009.
Disclosures: No positions in any stock mentioned. I want to be the Secretary of the Treasury when Geithner resigns/steps down/or is forced out.