Thursday, August 29, 2013

Glass-Steagall Must be Restored

Let us make it simple.  I am a lifetime student of economics and have developed a deep appreciation for the financial innovations pioneered in the thirties largely under the leadership and influence of Joe Kennedy in particular.  He understood markets explicitly just as I do from my own experiences in twenty years of broking.

When the Glass – Steagall was repealed as Clinton left office, I said that it will bring about a catastrophic collapse around eight years into the next cycle.  That was his worst mistake and it was his and no other.  Yet it was through ignorance and sustained through the ignorance of his successors which is sad.

The collapse came and has been  with us to the present although we are beginning a new cycle possibly.  Put Glass Steagall back in place and we will avoid a repetition in the early 2020’s.

Glass-Steagall must be restored

Aug. 22, 2013 

In “JPMorgan Chase’s CEO sounds off on regulation, growth of institution” (Business, Aug. 7), Jamie Dimon said we shouldn’t restore the federal Glass-Steagall Act because Australia and Canada have supposedly done alright without such a law.

I disagree.

America is a sparsely developed and grossly underpopulated British former colony; it became the world’s leading industrial and commercial banking system originated by George Washington’s treasury secretary, Alexander Hamilton. The 1933 Glass-Steagall Act was a return to Hamilton’s principles of national banking after Wall Street had taken the country astray in the 1920s, leading to collapse.

Dimon and fellow bankers did that again after Glass-Steagall’s repeal in 1998, with the catastrophic result. Re-enactment of the “American System” Glass-Steagall legislation should have been accomplished by now. It prevented government–insured commercial bank deposits from being used by speculation by investment firms.

Three bills to restore Glass-Steagall are pending in Congress. Glass-Steagall memorial resolutions are pending in 26 state legislatures; consideration of it has gone worldwide (including four such bills in Italy’s parliament. Congressman Rodney Alexander, R-Ruston, is co-sponsor of said legislation.

Today, nearly five years after the bailout, Dimon says his firm — which just agreed to a $500 million fine for California electricity price manipulation — doesn’t need Glass-Steagall. Dodd–Frank works for him, comparing the fine to what Enron and its chief executives ultimately faced.

Glass-Steagall didn’t allow banks to own and speculate with commodities, power plants, oil tankers and metals warehouses. It would have prevented JPMorgan Chase’s electricity ventures. Detroit, Philadelphia and other cities are being bankrupted by interest-rate “swaps” based on banker-rigged LIBOR rates. Banks could not have sold those swaps under Glass-Steagall.

If they had not been sold by a bank floating it municipal bonds, what city would have bought swaps?

Fred Huenefeld

How It Works

Since 1999, banks have been allowed to use commercial deposits and assets as fuel for securities trading on the derivatives market.

Because commercial and speculative assets are so heavily comingled, the government is forced to protect the assets of banks making risky bets through near perpetual bailouts and purchasing of toxic debt.

It was the derivatives bubble that blew up the system and bankrupted the US banks in the 2007-2008 crash.

1. Commercial Banking institutions have one year to divest themselves of all non-commercial banking units, with no cross management or ownership between commercial and non-commercial units.

2. Commercial Banks are barred from using more than 2% of its capital for the creation, sale, or distribution of securities (certain bank-qualified securities are exempted)

3. Prevents Commercial Banks from loaning their commercial deposits into such vehicals as would support the creation and circulation of securities.

4. No securities of low or potentially low value can be placed by a bank into its insured commercial bank units.

* Adds provision stating Glass-Steagall is the preeminant regulator of the banks, limiting banks from putting its depositors and shareholders at risk.
Glass-Steagall forces separation of commercial from investment banks, it ends Too Big To Fail, bars government bailouts, and will stop the onset of hyperinflation.

Elizabeth Warren Pushing to Break Up Big Banks With Glass-Steagall Revival
By Jennifer Calonia  • July 12, 2013

Elizabeth Warren has had her share of controversy, but her latest move is a clear indication that the Massachusetts Senator isn’t backing down from the spotlight anytime soon. On Wednesday, Warren proposed a bill that called for the return of certain protections from the now-repealed Glass-Steagall Act, causing banks and lobbyists to bristle.

What Is the Glass-Steagall Act?

The Glass-Steagall Act of 1933 was put into law in an effort to safeguard federally-insured bank deposits from being used by commercial institutions for high-risk investment banking. It was a response to the financial fallout of the Great Depression, but was repealed in 1999 with the full support of Wall Street during the Clinton administration.

Elizabeth Warren Guns for Big Banks

In addition to Elizabeth Warren, Senator John McCain, Democrat Maria Cantwell and Independent Agnus King have joined forces in support of the 21st-century version of the Glass-Steagall Act.

An official statement from Warren’s office states that the bill “reduces risk for the American taxpayer in the financial system and decreases the likelihood of future financial crises.”

Senator John McCain also expressed his stance on the topic of banks deemed “too big to fail:”

“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world.”

On her official twitter account, Warren shared her overarching philosophy — “banking should be boring.”

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