What Cause The Stock Market Crash --- Glass-Steagall Act
Native Nashvillian
I hope your doing well. As you are aware, the stock market
has had a major crash. A lot of people with 401K retirement
plans have taken a dive. We may see unemployment go
even higher in 2009.
If you want to know in detail of what cause this, please check
out the link shown below. It is very well detail to the actions of
the 109th Congress back in 1999. The repeal was lead by a
one "Senator Phil Gram". He is currently John McCain economic
adviser during his presidential quest.
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FROM:
http://www.investopedia.com/articles/03/071603.asp
In 1933, in the wake of the 1929 stock market crash and
during a nationwide commercial bank failure and the Great
Depression, two members of Congress put their names on
what is known today as the Glass-Steagall Act (GSA). This
act separated investment and commercial banking
activities. At the time, "improper banking activity", or
what was considered overzealous commercial bank involvement
in stock market investment, was deemed the main culprit of
the financial crash. According to that reasoning, commercial
banks took on too much risk with depositors' money.
Additional and sometimes non-related explanations for the
Great Depression evolved over the years, and many questioned
whether the GSA hindered the establishment of financial
services firms that can equally compete against each other.
We will take a look at why the GSA was established and what
led to its final repeal in 1999.
Reasons for the Act - Commercial Speculation
Commercial banks were accused of being too speculative in
the pre-Depression era, not only because they were investing
their assets but also because they were buying new issues
for resale to the public. Thus, banks became greedy, taking
on huge risks in the hope of even bigger rewards. Banking
itself became sloppy and objectives became blurred. Unsound
loans were issued to companies in which the bank had
invested, and clients would be encouraged to invest in those
same stocks.
Effects of the Act - Creating Barriers
Senator Carter Glass, a former Treasury secretary and the
founder of the U.S. Federal Reserve System, was the primary
force behind the GSA. Henry Bascom Steagall was a House of
Representatives member and chairman of the House Banking and
Currency Committee. Steagall agreed to support the act with
Glass after an amendment was added permitting bank deposit
insurance (this was the first time it was allowed).
As a collective reaction to one of the worst financial crises
at the time, the GSA set up a regulatory firewall between
commercial and investment bank activities, both of which
were curbed and controlled. Banks were given a year to decide
on whether they would specialize in commercial or in
investment banking. Only 10% of commercial banks' total
income could stem from securities; however, an exception
allowed commercial banks to underwrite government-issued
bonds. Financial giants at the time such as JP Morgan and
Company, which were seen as part of the problem, were
directly targeted and forced to cut their services and,
hence, a main source of their income. By creating this
barrier, the GSA was aiming to prevent the banks' use of
deposits in the case of a failed underwriting job.
The GSA, however, was considered harsh by most in the
financial community, and it was reported that even Glass
himself moved to repeal the GSA shortly after it was
passed, claiming it was an overreaction to the crisis.
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Stupendous Man
news:pMqdnbdaM8-HBkzV...@earthlink.com...
But did you tell them that only 7 members of the Senate voted no against
that measure, and that Harry Reed and a majority of Democrats voted in favor
of the legislation and that Bill Clinton signed it into law in 1999? Any
time you end Government deregulation, you may have some misses on along the
way, but eventually the market will correct itself. Why anyone puts all
their retirement into the stock market has always puzzled me. Tax free
municipal bonds are much safer, and once you have a block of $25,000 to
invest, you should put in into the tax free municipal bonds. Once you say,
have a safe investment of $500,000 dollars split into blocks of $25,000 to
$50,000 with total quarterly tax free interest that totals 40,000 a year, or
say a 1 million with $80,000 dollars a year, figuring on a yield of 8%, then
you can start playing the stock market to try to get short term greater
yields, and if a stock goes belly up, you still have your principle
investment to use. Why anyone would retire keeping $25,000 or more invested
in the stock market at one time without a pre-existing capital to back it
up, such as from the tax free municipal bond market, has never made any
sense to me. Why any one would have checking or savings investments in a
bank for greater than $100,000 per account has never made any sense to me
either, since the FDIC can't insure more than that amount per account.
Why ordinary people don't track the trends of their investments, and watch
what they invest has always perplexed me. When the DOT.com bust happened in
2001, from the mid 90's on when it started to take off, I saw no sense in
the investment other than a lot of hype. In the 80's when prices of real
estate began to soar, I knew back that they were over rated for local tax
revenue purposes and was a bubble that would eventually see its end and
trend back down towards sanity.
Yes, we can blame Republicans and Democrats both if you like for being short
sighted on this matter, but is more government regulation and taxation what
you really want in your business? None of what has happened to these banks
surprises me one bit whatsoever at all. You can't soften lending standards
for the lowest minority when it comes to credit and not expect to not be
burned. That is why you have credit ratings and standards. It's just more
proof that the idiot liberal mindset of the 90's of appealing to the lowest
common denominator so they don't feel bad, just doesn't work in the real
world, whether its grades in school, or credit you lend out. Real life
happens.
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"I predict future happiness for Americans if they can prevent the government
from wasting the labors of the people under the pretense of taking care of
them." - Thomas Jefferson
Stupendous Man
http://www.myspace.com/stupendousfriends
PS>I am a member of the League of Stupendous Gentlemen! ;)
PS2> Elliot still has bad case of:
http://www.texasinsider.org/images/news/cartoons/GaryVarvel091208.jpg