Labor's Pains

Sunday, February 12, 2012

A banker speaks out on the banking disaster that grew out of repeal of Glass Steagall

I was a local board member of NationsBank, now Bank of America. Some years ago I was retained by NationsBank’s Investment bank’s Merger and Acquisition Department to seek M&A opportunities in the furniture industry. I can tell you from that experience that the existence of a legally required Firewall between Banking and Investment Banks is a fiction.

I for one think the financial crisis has been, and continues to be, one of the most devastating things that has happened to our country in my lifetime. That’s saying quite a bit since I’ll be 78 years old in January.
A tremendous amount has been written about the disaster. As an unknown author has said, ”After all is said and done, a lot more will be said than done.” This has certainly been the case in our current misery. Although Martha Stewart served time for lying to the FBI about a $40,000 misbegotten gain in the securities market; the fraudulent activities in the subprime mortgage-security market involving billions has landed few, if any, in jail.

As a remedy…There have been hundreds of proposals to reinstate Glass-Steagall, the legislation enacted right after the “Greater “Depression and repealed during the Clinton administration by congress.. Glass-Steagall legislation was designed to restrict banks to what had been the business of banking by not allowing their Holding Companies to include investment banks handling securities, thereby protecting banking customer with low risk from the high risk of securities and other products advanced by investment banks. Even as I write the FDIC is trying to ward off Bank of America’s attempt to transfer high risk instruments from its Merrill Lynch assets to a part of its banking division, the FDIC has thought this would put ordinary bank customers at risk again and cause another bailout of the bank.

With the millions being spent by the banks on lobbyist trying to keep congress from a reinstatement of Glass-Stegall regulations, those regulations are not going to be put into effect any time soon. (Dodd-Frank was an attempt, but fell short.)

Consumers who logically don’t want to see the banks fail or to bail them out again can insulate themselves if they would move their funds to community banks and credit unions. Even commercial lending may soon be handled by one of the largest credit unions in the state, allowing small business to escape the risk of losses in Investment banks.…

-- Jerry, a friend of the blog.

LP - There is nothing more annoying than people who can follow the government's inability to regulate and industry but then seem unable to follow the bribes that go into the government, via campaign contributions, that does not allow the government to stop them from stealing money out the back door. Where many people continue to go to jail for petty robbery if you steal millions there is almost no chance you will go to jail. You'll just be too valuable to do any time.

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