This post is for frequent commenter Robert “LaRouchie” Lauten, who will spit into the wind his insistence that the re-instatment of the Glass Stegall act which provides tighter regulation of banks and large financial institutions is the cure-all for what ailes the economy. The New York Times says “not so fast.”
From the story in Tuesday’s edition of the Gray Lady:
“A meme around Glass-Steagall has been created, repeated so often that it has almost become conventional wisdom: the repeal of Glass-Steagall led to the financial crisis of 2008. And, the thinking goes, has become almost religious for some people, that if the law were reinstated, we would avoid the next crisis.
The facts — basic facts — just aren’t that convenient. While the repeal of Glass-Steagall has seemingly become the sine qua non of the financial crisis, it is pure historical revisionism.
Bringing back something akin to Glass-Steagall would clearly help limit risk in the system. And that’s a very good and worthy goal. Letting banks sell securities and insurance products and services allowed them to grow too big too fast, and fueled a culture that put profit and pay over prudence.
But here’s the key: Glass-Steagall wouldn’t have prevented the last financial crisis. And it probably wouldn’t have prevented JPMorgan’s $2 billion-plus trading loss. The loss occurred on the commercial side of the bank, not at the investment bank. But parts of the bet were made with synthetic credit derivatives — something that George Bailey in “It’s a Wonderful Life” would never have touched.
For the free market to function best, it needs to follow a set of rules. Too often, conservatives and those wacky Libertarians at the OC Register’s editorial desk, confuse the concept of “freedom” by suggestion rules to monitor and manage the “freee market” are a threat to freedom. Yet every time another long standing policy is de-regulated, we run into a problem.
The piece details the why behind those instutions who got the biggest of the bailouts.