John’s mentioned this a few times.

Recently, JPMorgan Chase announced that it had lost more than $2 billion on risky trades. The news raised more questions about the need for tighter banking regulations; some insisted that more oversight is needed in order prevent the risk inherent in depository institutions proprietary trading. Others, though, believe that introducing new regulations won’t really solve the problem. Instead, there are suggestions that reinstating the Glass-Steagall act would be the most effective way to prevent these types of losses in the future.
[…]
Glass-Steagall prohibited commercial banks from participating in investing.

Oddly enough, in looking for a picture, I found this from two years ago. I wonder where we’d be if they had done it back then? Or five years ago? Or never killed it?



  1. US says:

    This is the most obvious and simple idea to resolve this problem. Allow the investment banks take all the risk they want, but separate off the retail banks. A nice balance between regulating and not regulating business.

  2. Chris Brown says:

    This contention that G-S would have saved us all is totally bogus.

    Please see that the NYT today on this:

    http://dealbook.nytimes.com/2012/05/21/reinstating-an-old-rule-is-not-a-cure-for-crisis/

    Even Elizabeth Warren in the article admits that it is an absurd suggestion that G-S would have had *any* effect on the recent bank problems nor would have avoided JP’s losses.

    (she does say though that it is a good way to gin up support, even though wrong)

    • ugly, constipated, and mean says:

      Elizabeth Warren said it? Wow, that’s pretty much settled then.

      • mharry860 says:

        Yep, that does it for me. Have you seen her Cherokee recipes for crab? Must have been a bitch for the Cherokee to get a hold of crab and figure out what to do with it, but she’s got the recipe.

    • What? says:

      She’s an Elite. Everything she says may support her agenda.

  3. sargasso_c says:

    The government has a responsibility to the public to keep banks and other private savings institutions from betting it all on a borowed race horse. Or whatever.

    • orchidcup says:

      The big bankers are philosophically opposed to government regulation, but they are not philosophically opposed to being bailed out by the government (taxpayer) when they screw up.

      Socialism is wonderful when you can dress it up as free enterprise.

      • pedro says:

        The crisis was partly created by the meddling of the government to give absurd credits.

        But Sargasso is right on the money

      • pedro says:

        Problem is that both government and corps are extremely corrupted and continually collude in detriment of regular citizens.

  4. bobbo, the pragmatic existential evangelical anti-theist and Junior Art Critic says:

    Ain’t reality a bitch?

    Let me repeat those who have a hard time with reality——

    AIN’T REALITY A BITCH?

    I will read with interest the link that Chris Brown provides above. I’ll bet (ie, act like an investment house) they make a key assumption that simply isn’t true. I can think of 4-5 talking points but won’t pollute the forum by uttering them but you know the mindless tripe that is brought out: “Its part of capitalism…..” I’m going to read it because E Warren supposedly doesn’t support G-S? I find that hard to believe.

    Post hoc, ergo proctor hoc. After this, because of this. Restated: a simple logic error in support of causation. Wrong because it is too often actually only unrelated coincidence or some higher correlation or even concomitant causation, or even confusing the effect with the cause by not identifying the time line correctly.

    BUT TRUE CAUSATION is consistent with Post Hoc analysis so it cannot be thrown out dogmatically.

    What to do with “evidence” that is not proof? We see it today in spades. With G-S==no Investment Banking failures bringing down Commercial Banks. Rescind GS and within 20 years–near world wide collapse. Cause and effect? Coincidence? Something else? Hmmmm–GS was crafted to stop exactly what has happened. Yet rescinding it and the Meltdown Happens is “not” related? Ha, ha.

    Then lets turn to stimulus. We have USA from 80 years ago, Japan from 20 years ago, and Europe today all applying “spending cuts” in face of recession. All were/are in the doldrums of worsening economies. USA 4 years ago engaged in a half-ass stimulus program and we are limping towards stabilization with slight growth.

    THE EVIDENCE IS–Keynes was right. But we are going to have an election where half the electorate wants to go against the evidence in favor of idealogy with NO EVIDENCE AT ALL to back it up.

    Why do hoomans do that? Look at yourself. Why do you believe things that have no support at all and deny the opposite view that does have support?

    Not saying which economic theory is “really” right==but if you don’t follow evidence, if you don’t follow Post Hoc demonstrations until a better explanation comes along, what are you really doing?

    How do you know what you know and how do you change your mind? If you can’t express the why’s and wherefor’s of what you believe HOW CAN YOU change your mind?

    You know, repeating dogma is not haveing a mind?

    Yea, verily.

    • bobbo, the pragmatic existential evangelical anti-theist and Junior Art Critic says:

      Well, its a nice quick little read, a good example of “spin” that everyone should recognize and avoid: http://dealbook.nytimes.com/2012/05/21/reinstating-an-old-rule-is-not-a-cure-for-crisis/

      The key is: “When I called Ms. Warren and pressed her about whether she thought the financial crisis or JPMorgan’s losses could have been avoided if Glass-Steagall were in place, she conceded: “The answer is probably ‘No’ to both.”

      PROBABLY? So–what are the critical factors that E Warren is and is not considering for this 7 word summary?

      The whole point of insulation–of separating Investment Banking from Commerical Banking is so that the IB can fail without affecting the CB. It is irrelevant that the first 4-5 dominoes of the WORLD WIDE BANKING CRISIS were not GS subjects. If they fall and ultimately crash into and bring down the GS CB’s of the world THAT is the very issue that GS was there to protect us from.

      Its not the FIRST DOMINO analysis that is dispostive==its the whole train.

      Ain’t reality a bitch?

      • CPBrown says:

        The NYT & Warren were mentioned because they have both previously used the repeal of G-S as a poster child for the crime of deregulation. There have been numerous studies looking into its effect (and finding none), and this is just an example of the mainstream acceptance, finally, that it would have had no effect on the financial crises or JP Morgan.

        But your ultimate conclusion is that even though G-S would have had no effect on either situation, it must a good idea anyway since it just makes *sense* ? Sounds to me like a ” a simple logic error in support of causation”.

    • Tod Stiles says:

      Bobo again wasting his intelligence and wisdom on the DU trolls. But thanks for the effort.

  5. dave m brewer says:

    I once lost a dollar years ago and I’m still pissed. How do you lose two billion dollars? … and life goes on.

    • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

      Same here. And thats why I don’t gamble. Two kinds of people in the world: those who are turned on by and always looking for “the win” and those who can’t stand losing.

      The first gambles/day trades/hedges with 40 to 1 ratios. The second goes to work, pays taxes, and supports the former.

      Ain’t reality a bitch?

  6. Mr Clever says:

    Americans are easily led aren’t they.
    Solyndra was a half billion dollar loss, they went bust.
    JPM London made this loss but was highly profitable overall. 1 or 2 billion is a rounding error to JPM’s books.
    There is an election soon that requires a rally, preferably a rally from a decent low.
    Jamie Dimon is a democrat.
    The subprime crisis was (the clue is in the name) fundamentally a subprime mortgage crisis, the democrats blocked all of bush’s attempts to regulate it (at least 3 times) and obama prosecuted citibank for not giving loans to poor black people.
    There’s a reason this crowd who apparently are so keen on regulation refuse to insist on something as simple as the uptick rule being reinstated.

  7. bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

    How to tell a dittohead talking points spouting douche:

    “and obama prosecuted citibank for not giving loans to poor black people.”

    Ha, ha. What a dolt.

  8. NewfornatSux says:

    Glass Steagall sounds good, but when it was in place, banks got around it all the time. The most recent bailout was because banks were buying up loans, so I don’t see how Glass Steagall prevents that.

    • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

      Gee Whiz NFS—where ya been?

      Can you state to the nearest 100 Billion the makeup components of the debt crises of 2008?

      You know–how much from:

      1. Liar Loans for Housing
      2. The Fannies
      3. Bubble Burst in Housing Market
      4. Bubble Burst in Commercial Property

      first 4 are variations on a common theme. From there we go to:

      5. Mortgage Investment Vehicles
      6. Default Insurance on those MIV’s
      7. Debt Default Swaps on the Default Insurance (The reinsurance market)
      8. Bonuses?

      Ha, ha—ok, #8 is just my humor.

      They are almost rank ordered in terms of size and causation except for commercial property. I added that just for dramatic tension–it was smaller than residential but got lost in its shadow.

      Now–we could all look up the differences in impact. But here’s a hint: one is in millions, another in billions, and another in Trillions. You know–like a thousand times different? (sic!)

      Or we could just blame obama for forcing these loans on illegal immigrants from Kenya.

      • NewfornatSux says:

        So how are any of those investments separate from loans?

        • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

          Only #1 is most like a loan. The rest are more like insurance. Its all definitional though.

          Debt swap obligation/reinsurance works like this: I take a premium from you of x% per year that if your portfolio declines more than y% I will pay you z% of the decline. I assume the market will never decline because I went to Harvard B-School or dealt three card Monty throughout reform school and I spend all the money you give me. Come the market bust, I say–“Hey, I don’t have any money to give you, I was “over-leveraged.” ….. and the dominoes fall.

          Now…..is it really that hard to spot the crime?===and it was in Trillions of Dollars, many multiples of our entire GDP.

          RICH = CRIMINAL. The details and the excused hardly even vary.

          • NewfornatSux says:

            Yea, and you are not a bank in that example.

          • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

            Just heard again on tv that the debt swap obligations were ((and probably are now again?)) a multiple of the WORLDS GDP!

            It is all gambling/wealth transfer: there is no “production” involved.

    • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

      Replace “planning” with “free market reliance” and you have another hit.

  9. msbpodcast says:

    I’m sure that when a post-USA researcher can dig up, or invent, some facts to try and explain how a country went from a surplus under risk-averse Glass-Steagall to a wild-ride, ride boom-to-[humongous-udder-swinging]-bust after Glass-Steagall, that researcher will conclude that his ancestors suffered a temporary near-centennial insanity and went up in flames.

  10. AdmFubar says:

    bankers and bankers should be up on charges for treason. they have done more harm to america than any terrorist organization ever has.

    • spsffan says:

      I still have trouble with the concept of treason in a democracy.

      But, as it happens, this particular democracy (the United States of America) was founded by treasonous, slave holding, tax evading 1%ers of the 18th century.

      All of which has little to do with the bankers and whether they should be brought up on charges. They certainly should be, and if convicted, should serve at least a few days of their sentences locked up in stocks in public squares where the public can bean them with rotten tomatoes and so forth.

  11. NewfornatSux says:

    Regarding Japan, Paul Krugman happily informs us that they are doing well thanks to all the Keynesian stimulus they got having to rebuild after the tsunami and earthquake. Someone put up a fake twitter post from Krugman saying the disasters would be good for their economy. Turns out he actually believes it!

    • spsffan says:

      Well, actually, sometimes disasters ARE good for the economy. The Black Plague that wiped out a third of the population of Europe left behind all the wealth, divided among fewer people. Result, the survivors were not only healthier, but richer.

      The good old USA didn’t do too badly, economically, after World War II, either.

      Disasters upset the apple cart, force the movement of capital and labor to new or neglected areas, spurring growth.

      Not that I’m in favor of disasters, but just like Hitler building the autobahns, there can be upsides to anything.

      • Sea Lawyer says:

        Repeat the broken window fallacy enough times and it just might come true.

      • Sea Lawyer says:

        And as far as the Black Death is concerned, the only thing you can show conclusively is that real wages increased significantly due to most of the labor force dying off; but then eventually declined again as the population rebounded. You are going to need some pretty fancy footwork to show that millions of people dying from an epidemic provides any other positive economic effects.

  12. NewfornatSux says:

    http://dealbook.nytimes.com/2012/05/21/reinstating-an-old-rule-is-not-a-cure-for-crisis/

    Lehman Bros, not a bank, Bear Stearns, not a bank, Merrill Lynch, not a bank, AIG, not a bank, Fannie Mae, not a bank, Freddie Mac, not a bank.

    Bank of America, a bank, whose losses came from buying Countrywide. Glass Steagall irrelevant.
    Wachovia, a bank, bought Golden West, Glass Steagall irrelevant.

    You are left with Citigroup which happened after the other houses fell.

    Oh yea, Goldman Sachs, not a bank.

    • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

      NFS–I agree. Those first dominoes are quite impressive. Very much DOES set the stage for whether or not GlassSeagull mattered at all and that the real issue is the CONCOMITANT cause of failure to regulate non registered securities ((ie–gambling)).

      I don’t know “economics” well enough to know “for sure” if removal of GS was causative or just a Post Hoc fallacy.

      Does anyone here “know?”

      What would have happened had all these investment banks gone bad /bankrupt but all the Commercial Banks had remained strong?

      You see–I am simple minded. I don’t believe you can have huge stimuli in a given system and not have changes. This applies to Gambling with Other People’s Money, Global Warming, Kiddies Education…. the whole range of hooman activies. How much garbage can you pump into a system before it will start to stink like garbage?

      Where is the line? What is the weight?

      Ignorance fighting with Ignorance. I don’t know—just my hunch that Post Hoc in this case is CORRECT. I need more than an inference to disprove the assertion. I need analysis and establishment of causation. Less than that is ignorance being spun like a top.

      You don’t have to be intelligent yourself to demand it of those you take counsel from.

      Ain’t reality a bitch?

      • NewfornatSux says:

        Read a timeline somewhere, that showed the bailout made things worse. Lehman Bros’ fall did very little. The failure of the bailout to pass the first time, when Nancy Pelosi took to the floor to complain about it, actually boosted the stock market.

        • bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

          OhRiley? Thats the problem with dogma. Takes you from introducing doubt to going full bat shit crazy.

          But to be fair, actually no one can “prove” that doing nothing would work better than what we did or that having a larger stimulus would have worked even better.

          What is definitional–is that after spending borrowed money in bad times, a Keynesian pays back the money in good times. something else no one ever does. And I think that is a MATHEMATICAL formula for failure.

          Just what we see today when we look, just LOOK, around.

          Same as it ever was.

  13. bobbo, the pragmatic existential evangelical anti-theist and Jr Culture Critic says:

    As always, the wiki provides what I take to be neutral analysis:

    http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

    About 60% down the right side bar slider we have the heading:

    “Glass-Steagall “repeal” and the financial crisis”

    and that is a good short read for those interested. I am willing to accept the argument there synthesized and restated here: repeal GS alone did not alone cause the collapse of 2008. It is only representative of the same failure to regulate the finanacial/commercial market that did cause the downfall.

    Ha, ha. Who can’t change their minds when they are driven to the water? Bravo Ms Warren: “Probably Not.” What an honest advocate.

    Probably Not.

    Now–what would have probably happened had Congress had the best interests of America in mind had they kept GS in place? Might they have also regulated unregistered securities? Might they have imposed capital requirements for trading on the margins? Risk retention pools for re-insurance products?

    Probably.

    And thereby hangs the tail.

  14. Uncle Patso says:

    It’s too bad Bill Clinton couldn’t have had four terms like Franklin Roosevelt did — the two most successful presidents of the 20th century.

    (Just finished Jean Edward Smith’s huge biography “FDR” — recommended. Looking forward to his “Eisenhower in War and Peace.”)

    • bobbo, the gourmand gourmet and galloping extremist says:

      clinton was great. Why do you think he signed the bill that revoked the GlassSeagull? I think that comes from living in a land locked state without access to sea birds?

      Yep, I blame Clinton. Its one thing to feel our pain, quite another to cause it.

  15. chris says:

    Yes.

  16. Shockeye the Androgum Chef and leader of the Quancing Grig says:

    Clinton truly understood the primary law of our home planet: The gratification of pleasure is the sole motive of action. Now not only is the monetary system cannibalising itself, but so are your citizens. Congratulations, you will soon service the nine planets.

  17. Ryan Vann says:

    I believe Glass Steagall to be a red-herring. In theory, there are some negative feed back loops related to the interconnectedness of IBs and CBs, but there is also robustness and a sort of shock absorption in having a larger scope of business.

    Anyway, I’ve always seen the major issue of the recent crisis as an overemphasis on (cheap) short-term debt to finance longer term investments. Secondary to that issue was the rules that allowed increased leverage in specific asset classes (AAA rated for example). Glass Stegall wouldn’t have applied to either of those issues.