¿What is the reason Glass-Steagall act repeal is blamed for surge of derivative?

[hugolp]

Senators’ plan would put derivatives under the Federal Reserve


Senators are considering giving the Federal Reserve power to regulate clearinghouses for derivatives in a wide-ranging financial overhaul bill.

Sens. Jack Reed (D-R.I.) and Judd Gregg (R-N.H.) have been deep in negotiations on how to impose new restrictions on the opaque and multitrillion-dollar market for derivatives that many blame for exacerbating the financial crisis.



Gregg has been considering ways to give the central bank more authority over clearinghouses, the third-party entities that settle derivatives transactions.


“It is important that the Federal Reserve be involved in the risk management, oversight and regulation of clearinghouses,” Gregg said in a statement to The Hill.

The House passed legislation in December giving the bulk of the authority to the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).

“The SEC and the CFTC should maintain a role on governance, market structure and access,” Gregg said in the statement.

The Federal Reserve is the main regulator of the nation’s largest bank holding companies, which also are the biggest players in the derivatives market.

Derivatives transactions have been a major source of profit for the nation’s largest banks and financial institutions. In the third quarter of last year, banks took in $5.7 billion in revenue on derivatives, according to the Office of the Comptroller of the Currency. Five large U.S. commercial banks control 97 percent of the total face value of those transactions.

Banks also have major stakes in the clearinghouses, and some lawmakers have looked for ways to limit the influence of the banks.

http://thehill.com/business-a-lobbyi...ederal-reserve

Yes, I have heard that the Fed might get more powers as bank regulator. You have to tell me some day how do you find information and articles the way you do.

The thing is that I wanted confirmation of the claims of Senator Phil Gramm when he says that the bill of 1999 moved the regulatory powers over securities-based swaps from the SEC to the Fed and not, as some claim, leaved them unregulated. I want to know if Senator Phil Gramm is trying to lie his way out of the accusation or he is right and the accusation is false.

[bobbyw24]

You have to tell me some day how do you find information and articles the way you do.

I am a lawyer who deals with Mortgaged Backed Securities (I represent debtors in foreclosures and bankruptcy cases). I had to learn this stuff to defend my client's cases and fight the banks and securitized trusts

Check out this site: http://finviz.com/news.ashx

Read the book The Web of Debt. Many people here don't agree with Ellen Brown's solutions but you will learn a helluvalot about finance, and the modern crisis.

Here are some excerpts:

It's the Derivatives, Stupid! Why Fannie, Freddie, AIG had to be Bailed Out

http://www.globalresearch.ca/index.p...t=va&aid=10265

Ellen Brown – Stock Market Collapse: More Goldman Market Rigging?

http://maxkeiser.com/2010/05/08/elle...arket-rigging/

Ellen's site has parts of her book for free:

LESSONS FROM THE WIZARD OF OZ

http://www.webofdebt.com/excerpts/chapter-1.php

[hugolp]

I am a lawyer who deals with Mortgaged Backed Securities (I represent debtors in foreclosures and bankruptcy cases). I had to learn this stuff to defend my client's cases and fight the banks and securitized trusts

Check out this site: http://finviz.com/news.ashx

Read the book The Web of Debt. Many people here don't agree with Ellen Brown's solutions but you will learn a helluvalot about finance, and the modern crisis.

Here are some excerpts:

It's the Derivatives, Stupid! Why Fannie, Freddie, AIG had to be Bailed Out

http://www.globalresearch.ca/index.p...t=va&aid=10265

Ellen Brown – Stock Market Collapse: More Goldman Market Rigging?

http://maxkeiser.com/2010/05/08/elle...arket-rigging/

Ellen's site has parts of her book for free:

LESSONS FROM THE WIZARD OF OZ

http://www.webofdebt.com/excerpts/chapter-1.php

The first web is very interesting. I see now where you get all the interesting news. Great finding.

But about Ellen Brown, I really think she is full of bullshit. I just started reading the last link, the Lessons from the wizard of oz:

Money reform advocates today tend to argue that the solution to the country's financial woes is to return to the "gold standard," which required that paper money be backed by a certain weight of gold bullion. But to the farmers and laborers who were suffering under its yoke in the 1890s, the gold standard was the problem. They had been there and done it and knew it didn't work. William Jennings Bryan called the bankers' private gold-based money a "cross of gold." There was simply not enough gold available to finance the needs of an expanding economy. The bankers made loans in notes backed by gold and required repayment in notes backed by gold; but the bankers controlled the gold, and its price was subject to manipulation by speculators. Gold's price had increased over the course of the century, while the prices laborers got for their wares had dropped. People short of gold had to borrow from the bankers, who periodically contracted the money supply by calling in loans and raising interest rates. The result was "tight" money – insufficient money to go around. Like in a game of musical chairs, the people who came up short wound up losing their homes to the banks.

Bankers had control over the monetary system back then because the government had passed a law to centralize credit on the banks of New York. But since this law was passed by Lincoln and this people like Lincoln they will ignore this, and just say that bankers controlled all the gold, wich does not make sense. They are just twisting history to fit a monetary theory that makes no sense and also that has its bases on keynesian economics.

Anyway, I really want to keep this thread about making sense of the Glass Steagal Act repeal and its consequences, and the only part I am missing is this:

The thing is that I wanted confirmation of the claims of Senator Phil Gramm when he says that the bill of 1999 moved the regulatory powers over securities-based swaps from the SEC to the Fed and not, as some claim, leaved them unregulated. I want to know if Senator Phil Gramm is trying to lie his way out of the accusation or he is right and the accusation is false.

Any help from anyone apreciated.

[FrostyLeaf]

I am a bit tired of political propaganda about this, and would like to know the technical reason why the repeal of Glass-Steagal act in 1999 by the Clinton administration is blamed for the massive surge of the derivative market. I dont really get it.

The question poped to me because I am studying the Basels accords and Bassels I seems like the real reason why derivatives started to be used massively by banks. Once I have a clear vision of this I may open a thread, but can anyone tell me the explanation on how repealling Glass-Steagal created the surge in the derivative market.

Thanks.

I don't you can say that the repeal itself was a 'lone gunner' so to speak. The principles of Banking found in the Act were long ignored, especially by Greenspan. The repeal just allowed the fire to burn even hotter.

We have to seperate Commercial Banking, and the physical economic processes that are with it, from Investment Banking. Glass-Steagal did that from 1933. It whiped out the worthless paper while allowing the processes that were apart of everyday life to keep going.

We have to protect the people while we go through a process of Bankruptcy. I.E. Putting the Federal Reserve System under a Glass-Steagal Standard of Banking. You then get rid of the "monopoly money." What you have left is a system of national banking that is free of speculation and gambling. Don't get me wrong. People should be able to gamble. But they shouldnt be allowed to carry so much speculative garbage to an extent they hinder the abilities of the depository functions of commercial banking practices.

http://www.larouchepac.com/lpactv?nid=14492

Brief Video on Glass-Steagal. Others can be found.

[hugolp]

I will use this post that I did not see back then to bumb this thread.

I don't you can say that the repeal itself was a 'lone gunner' so to speak. The principles of Banking found in the Act were long ignored, especially by Greenspan. The repeal just allowed the fire to burn even hotter.

We have to seperate Commercial Banking, and the physical economic processes that are with it, from Investment Banking. Glass-Steagal did that from 1933. It whiped out the worthless paper while allowing the processes that were apart of everyday life to keep going.

We have to protect the people while we go through a process of Bankruptcy. I.E. Putting the Federal Reserve System under a Glass-Steagal Standard of Banking. You then get rid of the "monopoly money." What you have left is a system of national banking that is free of speculation and gambling. Don't get me wrong. People should be able to gamble. But they shouldnt be allowed to carry so much speculative garbage to an extent they hinder the abilities of the depository functions of commercial banking practices.

http://www.larouchepac.com/lpactv?nid=14492

Brief Video on Glass-Steagal. Others can be found.

Well, you have not answered to any of my questions. What you say is just another way of putting the same arguments that I alredy explained why they seem wrong.

Seriously, the original 1933 Glass Steagal act was just a political war and did not help the economy. Rothbard in his book about the Great Depression gives all the historical details.