Financial Crisis History

What Was the Glass-Steagall Act?

This law, also known as the Bank Act, was made after the Great Depression and did one big thing - made it illegal for commercial banks to engage in the investment industry.  Why was this important?  Think about an oil tanker and the compartments below deck that hold everything.  They are separated by small partitions to prevent loss of the entire oil supply, in case of fire or collision.  If they were just all in one big tank, a small fire or perhaps one leak could ruin everything.  The Glass-Steagall Act achieved a similar effect with the financial services industry by preventing commercial banks from merging with investment banks.  This means that less money was exposed to less risk.

The Glass-Steagall Act, Repealed in 1999.

Bill Clinton signed the Gramm-Leach-Bilely Act in 1999 that did one big thing - get rid of the Glass-Steagall Act.  Democrats may be shocked to find such a beloved hero at the root of such a poor decision that would help contribute to a financial crisis, but no party is clean.  Both Democrats and Republicans have been responsible for slowly deregulating the financial services industry since Regan in the 1980s.


Financial Regulation Today.

Congress signed a package of new financial services regulations into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.

Here's a link to a list done by Reuters of what the long-winded bill actually does: http://www.reuters.com/article/2010/06/25/us-financial-regulation-bill-idUSTRE65O1DR20100625

Can you understand any of it?

I've worked in banking for almost 4 years of my life and I had to do research to understand it.  What does it mean and how can you know?  Ironically, I usually watch the stock market when regulations are passed.  If financial services took a big hit for a while, I could be sure that they did significant damage to current practices.  People hate change and most are slow to go about finding new ways to conduct business.  Financial stocks rose after the bill passed and have generally been on the rise ever since.  When a law has no teeth, people aren't afraid.  When people aren't afraid, they will continue business as usual.  Sure, a few changes had to be made, but nothing that disturbed Wall Street.


The Future Doesn't Look Any Brighter.

Wall Street's largest banks are now 20 percent larger than they were before the decline, so the "too big to fail" argument is worth about as much as a crap streak on your favorite shirt.  Executives in this industry continue to get PAID even as the world struggles to create financial health.  Most of the biggest players that were instrumental to the financial crisis are in positions of trust in places like John Hopkins University, the Brookings Institute (non-profit based in D.C.), Harvard Business School and one of them is the Treasury Secretary.  The connections aren't just between Wall Street and Washington D.C., they're in our academic institutions, non-profit organizations and regulation agencies.

This was a classic example of systematic failure and the world paid.

You paid.

Most of the crooks haven't paid.