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Thread: If free markets are the answer, how do we reconcile Glass-Steagal?

  1. #1

    If free markets are the answer, how do we reconcile Glass-Steagal?

    In the 1920s, bank collapses were a direct result of unregulated practices by banks. Glass-Steagal was passed in 1933 and helped stabilize banking practices. The relaxation of Glass-Steagal and the later complete removal of the firewall between banks and investment houses resulted in a second collapse.
    Last edited by Met Income; 10-05-2008 at 06:57 PM.



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  3. #2
    Quote Originally Posted by Met Income View Post
    In the 1920s, bank collapses were a direct result of unregulated practices by banks. Glass-Steagal was passed in 1933 and helped stabilize banking practices. The relaxation of Glass-Steagal and the later complete removal of the firewall between banks and investment houses resulted in a second collapse.
    Fractional-Reserve Banking and the Federal Reserve led to the banking collapses prior to regulation.
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  4. #3
    Any fractional reserve lending institute is inherently insolvent. Combining that fraud with bad investment is not a good idea.

  5. #4
    Look to see how government interferes and you will find what caused banking to suck. Before the Fed system, you had suspension of payment in specie, which would allow banks to NOT redeem the certificates for the physical gold and silver. So they would just print it up and hand it out.
    "Anarchists oppose the State because it has its very being in such aggression, namely, the expropriation of private property through taxation, the coercive exclusion of other providers of defense service from its territory, and all of the other depredations and coercions that are built upon these twin foci of invasions of individual rights." -Murray Rothbard

  6. #5
    Scribbles
    Member

    Banks should have regulation. In so much as they should be obliged to honor contracts as much as any individual and shouldn't be mis-representing any of their business practices.

    When anyone you know starts talking about the need for more regulation point them right toward the Fed.

  7. #6
    Quote Originally Posted by Scribbles View Post
    Banks should have regulation. In so much as they should be obliged to honor contracts as much as any individual and shouldn't be mis-representing any of their business practices.

    When anyone you know starts talking about the need for more regulation point them right toward the Fed.
    Banks all over the world have violated their contracts.

    The FED is protected species. Most people on this forum would choose to eliminate them. However, most people despise the "open slather" of markets, banking institutions, and unscrupulous "bottom feeders." Some disciplining is required.

  8. #7

  9. #8
    I don't think we really need to have any regulation of banks; merely enforcement of contract should be enforced and fraud (loaning out more than you have) should remain illegal.

    under these conditions, anything less than full-reserve banking would be illegal, and since we've already said there isn't any regulation, it's highly likely we have a gold standard as well...therefore, the money supply is relatively fixed, and the only way it can be increased is by mining more gold, which is a very slow process.

    edit: Heck, even if banks weren't required to be "full-reserve", but instead operated like credit unions (loaned out their members money, but new money is not created in the process, at least, I'm fairly sure that's how a credit union works), there wouldn't be any inflation. You would still have problems with banks runs, however.
    Last edited by Fox McCloud; 10-05-2008 at 09:02 PM.



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  11. #9
    Quote Originally Posted by Kludge View Post
    What's "wrong" with bank collapses...?
    I'm not sure if you are being facetious.

    Monies are insured by the government.

    Correction: Substitute "government" for taxpaying citizen.

  12. #10
    Quote Originally Posted by Scribbles View Post
    ...
    When anyone you know starts talking about the need for more regulation point them right toward the Fed.
    The badness of the FED has no relationship on the badness of other regulations.

  13. #11
    Quote Originally Posted by nate895 View Post
    Fractional-Reserve Banking and the Federal Reserve led to the banking collapses prior to regulation.
    Yes. You are correct. Fractional-reserve banking cannot survive without government intervention. Btw, this is a good thing since fractional-reserve banking isa form of fraud.

  14. #12
    Bank collapse is what is supposed to happen.

  15. #13
    The idea is that if the Fed does not guarantee banks, the risk of carrying ONLY a 10% reserve ratio is too great, and that ration would thus increase.

  16. #14
    Glass-Steagal is rather silly, really. It's telling banks they can take certain types of risk but not others, irrespective of the LEVEL of risk.

  17. #15
    Leave it all up to the states.

  18. #16
    Op is blaming the effect, not the cause.

    Intellectual laziness in the extreme.
    “I will be as harsh as truth, and uncompromising as justice... I am in earnest, I will not equivocate, I will not excuse, I will not retreat a single inch, and I will be heard.” ~ William Lloyd Garrison

    Quote Originally Posted by TGGRV View Post
    Conza, why do you even bother? lol.
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  20. #17
    OP, how come banks without securities affiliations failed at four times the rate of banks with them in 1930-33? Wasn't the supposed danger of banks playing both hands the reason for Glass-Steagall, or was there another reason?

    That said, the repeal of Glass-Steagall was most likely a bad idea given the current economic policies in the US.

    But an insidious form of "market-based policy" is also a real culprit in the current mess. In 1999 a bill was passed by a Republican Congress and signed by Democratic President Bill Clinton that rescinded the Depression era's divorce of commercial banking activities from investment banking, called the Glass-Stegall Act of 1933. That opened a floodgate of "creative" financial instruments backed by notes and other commercial paper. Much of the banking regulation of the Roosevelt administration — including abandonment of the gold standard — made absolutely no sense, but markets can fail with dire short-run consequences under a fiat monetary system. With Glass-Stegall, Congress put its finger on and mitigated the tendency and temptations of banks to create massive costly externalities to society, in this case, by holding bundled mortgage-backed securities which were deemed safe by rating agencies but which ultimately failed the market test.

    The Financial Services Modernization Act of 1999 would make perfect sense in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance; but in the world as it is, this "deregulation" amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly. Such government privileges are nothing new to Republicans — consider the effective subsidies to the pharmaceutical, sugar, and steel industries — but this particular gift to financial institutions is what allowed the credit bubble to expand to such absurd proportions, because it allowed banks of all types to engage in increasingly risky transactions and to greatly expand the leverage of their balance sheets. As the crisis unfolds, credit continues to contract, the risk of bank failures increases, and the possibility of far more serious economic consequences become more apparent. The S&L crisis cost the taxpayers a few hundred billion, but this crisis has the potential of saddling the taxpayer with several trillion in bailouts.
    http://mises.org/story/3098
    Last edited by axiomata; 11-01-2008 at 11:10 PM.
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  21. #18
    Banking regulations basically keep the fractional reserve system in business. No regulation, fractional reserve banks would fail. We would have a nice sustainable economic system instead of a boom bust system.



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