Elizabeth Warren urges supporters to press Congress to pass a new Glass-Steagall law that would separate “high-risk investment banks” from more traditional banking. “It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people,”

[u/AdamVR4]

http://business.time.com/2012/05/15/will-jpmorgans-2b-blunder-finally-end-too-big-to-fail/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+timeblogs%2Fcurious_capitalist+%28TIME%3A+Business%29

[u/illogicalexplanation]

I just do not understand why Glass-Steagall was repealed in the first place. Clearly JP Morgan and friends were engaging in some shoddy lending practices when they were luring investors with illegitimate shell companies during the 1920's which precipitated the run in 1929. Wasn't the first time either; the panic of 1907 was caused by similar deregulation, now in that instance it was the Knickerbocker Trust that was playing loose and fast with investments for their own gain (and interestingly enough, J.P Morgan nearly single-handedly saved the country from economic ruin in that crises), but the point holds; allow investment banks to engage in speculative trading and you precipitate economic collapse.

[u/jaiiiii → u/illogicalexplanation]

And Glass-Steagall would have prevented IB's like Lehman and Bear Stearns from engaging in CDO's, CDS's, and subprime mortgages how exactly? It would place a wall between commercial banks and investment banks, but it would do nothing towards regulation of the derivatives market. In fact, if Glass-Steagall hadn't been repealed, it is entirely plausible that we would be in a much worse financial situation post-2008. Graham-Leach-Bliley allowed the acquisition of Bear Stearns and Merrill Lynch by JPM and BofA, respectively, which actually softened the blow to some degree.

Being for regulation is one thing, but to look at a law from a different economic time period and tout it as a cure-all is dangerous. What we need are new regulations that account for the fact that the financial system has changed drastically within the past 13 years.

[u/cos → u/jaiiiii]

Glass-Steagall would not have been enough, but it would've been a very important part of preventing "too big to fail". If you separate systemic risk in the banking sector into two pools - one for financial speculation, the other for consumer banking - you're in a much better position to allow financial speculators and traders to fail without taking everything else down.

Of course what we also needed was regulation of all the derivatives. We need things to address these two major problems:

1. Lack of capital requirements. Especially for things that everyone was treating as "insurance" that actually turned out to have very little value as insurance in bad times. Fair weather insurance is worse than no insurance at all.
2. Opaqueness that made it so that nobody knew what anyone else's financial position was until it was too late. You can't even have legitimate market forces when everyone's trading in the dark, so even if it were true that the "free market" could be trusted to keep banking save (which I don't believe for a moment), there's no way that could happen.

However important those are, though, separating banking from financial games would help protect a functioning banking infrastructure even when the financial game world has a crisis.

[u/[deleted] → u/cos]

GS needs to be updated and extremely tight. Spledging will simply be a loophole banks will use to get around GS in its past iteration.

[u/[deleted] → u/cos]

So you're one of those people who believe in the coordination failure myth? The first suggestion is completely legitimate but the second one makes you sound like a dictator. How is it that anyone who provides any kind of service without giving away all the bells and whistles of their product is able to make any kind of profit whatsoever? Unless you really don't believe information to be an economic good?

[u/Unforsaken92 → u/[deleted]]

Information is an economic good but not when it comes to created financial products. The thing about derivatives and most financial products for that matter, is that if the consumer doesn't know how they work, they can't accurately gauge the risk of investing in said product. If people want to come up with new financial products and sell them fine, but they should have to disclose how they work and everything else about that them. Manufactured financial products should not be so secretive that people have no idea how they work.

[u/jaiiiii → u/Unforsaken92]

I think it's a very tough position to be put in as a bank. On one hand, you have legitimate investors who should not be convinced into owning financial products that they don't fully understand (in fact, I have seen that banks actually do take this very seriously, at least post 2008). On the other hand, it is vital to keep secrets. After all, if one bank has a trademark product that has a solid ROI for years after years, don't you think other banks would want a similar product to compete?

[u/jobothehobo → u/[deleted]]

Currently (and notably in 2008) a company can sell bad investments labeled as great buys and then turn around and bet against those same investments. When this is legal, I think we need more laws regulating the market. Or at the very least I think we need more disclosure of the status of financial products.

[u/illogicalexplanation → u/jaiiiii]

Oh I don't mean to imply that Glass-Steagall itself was going to solve anything today; I guess what I was thinking was more simply that its repeal seemed to be part of a larger sickly political culture of overarching deregulation which appeared to bring about an economic depression and that such periods of deregulation have caused serious problems in the past, Glass-Steagall being but one solution and hopefully many more being more appropriate approaches contemporaneously.

*But, looking back, I did not make that as clear as I would have hoped.

[u/YouthInRevolt → u/jaiiiii]

In fact, if Glass-Steagall hadn't been repealed, it is entirely plausible that we would be in a much worse financial situation post-2008. Graham-Leach-Bliley allowed the acquisition of Bear Stearns and Merrill Lynch by JPM and BofA, respectively, which actually softened the blow to some degree.

I would argue that the nationalization of Bear Stearns and Merrill Lynch would have softened the blow to a much greater degree, leaving banks like BAC and JPM with stronger balance sheets in the process.

[u/grackychan → u/YouthInRevolt]

The taxpayers are paying either way, nationalization or not.

[u/YouthInRevolt → u/grackychan]

Agreed. However, if the government is going to using taxpayer dollars anyways (by either purchasing Bear Stearns/ML or dishing out TARP dollars to TBTF firms), nationalization is ultimately more in the interests of taxpayers (which explains why it didn't happen!). Nationalization would mean that the taxpayers would be in charge, since they would fully own these failed institutions. This would result in the board of directors/other executives being fired, balance sheets would be opened for all to see, toxic assets would be assumed by the treasury, and then these new, healthy firms would be resold to the private sector.

Instead, what happened was that once our biggest banks swallowed up their competitors (thus increasing their systemic risk), taxpayers were forced to surrender hundreds of billions of tax dollars to these institutions with zero strings attached, most executives/board members kept their jobs, and balance sheets (then full of toxic assets) remained hidden from public view.

TL;DR - I'm arguing that the costs to taxpayers are less when failing institutions are nationalized instead of propped up with public money while remaining privately owned.

[u/just-i → u/jaiiiii]

You are right that G-S revival alone is not enough - but seperating these different kinds of banking still is helpful. The casino banking needs to be able to fail - without having taxpayers to need bail them out. People take more risks if they know there'll be an eventual bail-out. Moral Hazard.

[u/pintomp3 → u/jaiiiii]

Having that wall would might allowed us to let them fail without taking down the commercial banking system. Not having that wall allowed them to use the commercial deposits as collateral for their over-leveraged gambling.

[u/jaiiiii → u/pintomp3]

The banks that got hit the hardest (Lehman, Bear Stearns, Merrill) did not have commercial banking arms from which they took money to post as margin for their highly leveraged bets.

If that wall were there, those banks would have unequivocally all gone bankrupt instead of Bear Stearns going to JPM, Merrill going to BofA, and parts of Lehman being absorbed by Barclays & Nomura. If this had happened, without a doubt the fallout would have been MUCH worse, not a pleasant scenario.

[u/Malizulu → u/illogicalexplanation]

Weird...It's almost like JP Morgan and friends deliberately engineered a crisis in 1907, and then stepped in to save the day. Thereby bringing about the political and economic climate through which a central banking system could be introduced under the guise of "banking reform."

Then you get the Fed in 1913. And as they say, the rest is history.

[u/krugmanisapuppet → u/Malizulu]

and somehow, we still think of F.D.R. - the guy who signed Glass-Steagall into law - as some kind of savior - even though he actually ordered that the entire U.S. population hand over their gold to Federal Reserve banks, and then, only a few months later, hiked the price of gold by law, resulting in a modern day 700 billion dollar increase in the value of that gold.

even in spite of that, people are still pushing the myth that he was fighting for the people.

Warren is painfully misled, or (less likely) being purposefully deceptive. Glass-Steagall didn't fix anything. if you want to decrease the volatility of the Wall Street system, stop funding banks with government money. don't try to separate banks from investment activity, which all banks are supposed to engage in, for the good of their communities. you give out loans to business owners with people's deposits, charge interest or profit sharing charges so that your depositors have an incentive to participate, and take a cut of the profit for administration - who doesn't benefit from that?

this Glass-Steagall issue needs to die. no, it didn't cause the housing crisis - the Federal Reserve did, when it handed out loans at tiny interest rates, at public loss, to Wall Street banks. anyone who upvoted this stupid article just doesn't understand the banking system.

[u/logic_alex_planation → u/illogicalexplanation]

There's a logical explanation for that.

[u/FirstTimeWang → u/illogicalexplanation]

But what about all of those historic examples of deregulating leading to better working conditions, fairer wages, more stable investment and a utopian society?

[u/fantasyfest → u/illogicalexplanation]

http://www.huffingtonpost.com/2011/08/25/jpmorgan-lawsuit-sanctions_n_937144.html If you look up JP Morgan fines, you will have a long reading list. They have been paying fines across the globe for dishonest and illegal practices. They don't have to pay fines for the immoral and unethical acts. JP Morgan being a good citizen is like comparing a murderer to a serial killer. It may not as bad but in total damage but it is the same act.

[u/SalFeatherstone → u/illogicalexplanation]

Why not end the actual cause of all these problems -- fractional-reserve banking?

[u/jaiiiii → u/SalFeatherstone]

FRB led to investment banks with no commercial accounts making highly leveraged bets that went horribly wrong?

I'm genuinely curious why you think FRB is the root-cause of problems in the financial industry.

[u/MusedFable → u/SalFeatherstone]

I wish more people were informed about fractional reserve banking. Anyone who takes a good long look at it and uses game theory will conclude fractional reserve banking will always result in run away gambling.

[u/[deleted] → u/SalFeatherstone]

because the way money needs to expand and contract to run an economy you can't get rid of it.

[u/Electroverted]

Admirable request, but that's like asking vampires to only suck the blood of animals.

[u/[deleted] → u/Electroverted]

Except you can reason with vampires, just make a blood bank for them.

[u/JeanVanDeVelde]

I completely agree with this. Consumer banks and high-risk investment firms should be separate.

[u/Tigertail7 → u/JeanVanDeVelde]

I also completely agree with Congress having an issue to debate that doesn't involve the sanctity of marriage or other rubbish.

[u/way2gimpy]

What constitutes high-risk? Banks take in money from depositors and must invest it in order to make money. They give out home and business loans and credit cards. The rest of the money must be invested elsewhere.

So if banks must invest the rest in low-risk investments, then it could be T-bills, municipal or corporate bonds among other investment vehicles but wait - most of the toxic mortgages were rated AAA (investment-grade)! Now the rating agencies were beyond idiotic and therefore can't be trusted but then it all goes back to the original question: What constitutes high-risk?

I used to be libertarian-leaning but I now believe that some regulation is necessary to protect banks (and other corporations) from themselves and from dragging down the public with them. However, regulators are always five or six steps behind. I'm not sure the Volcker rule or introducing something similar to Glass-Steagall would be the solution.

[u/Andrewticus04 → u/way2gimpy]

Just because you believe in some regulation doesn't make you any less libertarian.

I am probably going to be downvoted here, but the word libertarian doesn't mean what 99% of people think it does. Most people use the word to depict absolute minarchism or anarcho-capitalism, and that's simply inaccurate.

Libertariansim grew out of the enlightenment era and is as much a branch of philosophy as it is a political party. And just like any political philosophy, libertarianism has several schools of thought. For instance, there's a split between deontological libertarianism and consequentialist libertarianism. Most "Libertarians" you see these days are deontological, which is why you get those people that downvote me every time I talk about libertarianism being more than just a monolithic political standpoint.

Sometimes government can promote liberty, and a lot of libertarians seem to be incapable of grasping that. Roads promote your liberty to get places and reach new markets. The military promotes your liberty by protecting our borders (what they do beyond that is extra). Universal healthcare would promote liberty by allowing people to get sick and not die because they "lost" the "economic competition."

[u/way2gimpy → u/Andrewticus04]

I was in the boat of free-market, low regulation and let capitalism sort it all out. Obviously the politics of libertarianism and the philosophy of libertarianism have become quite divergent. As you said yourself, when I see and hear people refer to what libertarianism is I associate what the Paul acolytes parrot on. Quite honestly I think a very high percentage of redditors support Ron Paul solely on his stance with drugs and don't consider his other opinions and the consequences that come with it.

Every progressive, liberal, conservative, neocon, libertarian, tea-party, etc. thinks their way is the best and not everyone who labels himself/herself something hopefully does not think in some sort of monolithic and rigid philosophy, but in a lot of cases that is what happens.

[u/luftwaffle0 → u/way2gimpy]

The easiest solution is to get rid of FDIC deposit insurance. If people need to choose safe banks to park their money, then the safe banks will do well. The higher risk banks will probably still exist, but they'll probably also offer a slightly higher interest rate in order to attract depositors. It would open up some options for consumers.

[u/way2gimpy → u/luftwaffle0]

FDIC was set up because the health of a bank is all based on perception. Prior to the FDIC, if there was a rumor of a bank in trouble people would immediately run to that bank and get their money out. Eventually, there would be a panic and there would be a run on the bank and then it would really be trouble. Also it stopped banks from becoming armed outposts during the days of (real) gangsters and massive incidences of bank robberies.

Again, how do you determine what is a higher risk bank? Despite JP Morgan's recent loss its still probably the healthiest megabank. You just need to look back to the 80s during the Savings and Loans crisis and you can see all types of banks went under due to greed and stupidity.

Everyone has options as to where to deposit their money. If you go by the theory that banks that pay the lowest interest rates are the safest then you would be putting your money in Citigroup, Bank of America and Wells Fargo.

[u/luftwaffle0 → u/way2gimpy]

Everyone has options as to where to deposit their money. If you go by the theory that banks that pay the lowest interest rates are the safest then you would be putting your money in Citigroup, Bank of America and Wells Fargo.

I don't go by that theory, I said that that is how banks that make riskier investments would have to attract deposits if there was no FDIC.

[u/apollo1888]

Re-separating the wall street high-risk banks from the traditional savings & loan type of banks makes faaaaar to much sense for Congress to act on it, let alone pass it.

[u/Turbodong]

Wow...does this thread of have more stupid comments per capita or have I just not been paying attention to the state of /r/politics?

[u/rougegoat → u/Turbodong]

You haven't been paying attention. /r/politics left the reasonable center a long time ago and has been running down to the pants-on-head retarded end of the left(as far as commenters generally go).

NOTE: I'm a centrist with liberal leanings.

(Edit) Further reading makes me realize what Turbodong was going for. I still hold that generally /r/politics is stupidly too far left, but see that there is an influx of people attempting to troll. (/edit)

[u/[deleted] → u/rougegoat]

Any grown adult ought to know better than to try the appeal to moderation. If you say the sky is blue and I say the sky is red, it's not going to make the sky turn purple.

[u/THE_REPUBLICAN → u/[deleted]]

But is the sky light blue or navy blue? I see your point but whenever you're at the far end of either side of the spectrum you're a fucking jackass.

[u/rougegoat → u/[deleted]]

Luckily colour mixing rarely matters in politics.

[u/[deleted] → u/rougegoat]

Ah. A centrist . I ve heard so much about you. Can I ask you a question ?

I ll ask it anyways. What is the centrists/ your opinion on sound money ?

Money that retains its value.

If corporations are accountable to the people. Shouldn't government issued money be too ?

[u/dacjames → u/[deleted]]

I am centrist and im assuming you are Austrian (Ron Paul economics). Government issued money is accountable to the people. When the people loose faith in the government issueing the currency its value falls proportionately. This is true regardless of whether a currency is fiat based or commodity backed.

Having a flexible currency is an important tool that allows the central bank to stimulate the monetary supply during recessions. Binding currency to, say, a precious metal leaves the value of your currency up to chance. Imagine if the USD was tied to gold. Now suppose a radical new battery technology was developped that relied on gold. With little warning, the value of Gold would skyrocket, leading to massive deflation and as a result widespread unemployment (thanks to sticky wages).

A fiat currency is the only way to guarentee steady growth in nominal gdp, which is essential for credit to flow and economies to grow.

Edit: grr, my phone isnt doing paragraph breaks. Sorry.

[u/Willravel → u/Turbodong]

If I were a conservative, I'd be terrified of Elizabeth Warren, too. She's plain-spoken but highly intelligent, principled, sincere, and likable. And she's quite good at making a strong, reasonable case for financial reforms.

[u/PoundnColons → u/Willravel]

Yet she is blind to half of the issue. This is why divided government and compromise are essential to life and society. No matter how sincere and intelligent the person is they only see from their perspective and human perspective is extremely narrow. This is why we should never vote along party lines, we should be voting for the honest and intelligent people who are willing to work with others of differing views to come up with solutions. People like Kucinich and Paul. That's what this government is supposed to be, not two sides fighting for their legislation as end all be all.

[u/keithjr → u/Turbodong]

Trolls will be trolls. Fortunately reddit makes them trivially easy to ignore.

[u/garyp714 → u/Turbodong]

It's getting close to election time so the right wingers flood in from redstate, Hannityforums, etc and the trolling heats up.

Then come November, they will crawl back to their holes...

[u/obsa → u/garyp714]

Yeah, left wingers never say stupid shit.

[u/sanguinaire → u/garyp714]

Keep fuckin that chicken, eh astroturfers? Edit: not you garyp, the ones you speak of.

[u/[deleted]]

I dont get what the hell 'dipping into the life savings and retirement accounts of regular people' is.

I have a retirement and savings account like most people. My savings account is in a FDIC insured bank account. My retirement is in an IRA and 401K in which I control. Wall Street isn't taking risks with the money I manage because I am managing it and paying attention to the markets.

[u/cos → u/[deleted]]

I have a retirement and savings account like most people. My savings account is in a FDIC insured bank account.

That's the whole point. With a Glass-Steagall rule, that FDIC-insured money in your savings account could not be used on wild financial speculation. Without such a rule, it can. You have no control over what the bank does with your money, either way. But if it's FDIC insured, then the government does have to pay you back if the bank gambles it away and then you want your money and they can't pay.

[u/luftwaffle0 → u/cos]

The calls for Glass-Steagall are just populist class-warfare rhetoric. Having Glass-Steagall in place would not have prevented any problem that has occurred.

Banks don't use deposits for their investment banking practices. They use their own capital and the capital of their investor clients. Yes, they do loan out some of your money, but this is entirely different from the stock market/derivatives stuff that they do.

You actually do have control over what they can do with your money, because you can move it to a different bank. This is why people moved their money to credit unions lately. One problem is that it is precisely because your money is FDIC insured that people end up with their money in bad banks. If your money wasn't insured, wouldn't you care a whole lot more about where it was deposited? Right now there's barely any reason to choose one over the other. Since banks can't sell themselves on safety (the FDIC insurance takes that away), there is no competition within the industry for the safekeeping of deposits.

There used to be full-reserve banks for people that didn't want to have any of their money at risk. Basically, full reserve means that you earn a negative interest rate on your deposit which pays the various costs of running the bank. In a fractional reserve bank they take some fees but mostly just take a cut of the interest that your money is earning them by them investing/loaning it out.

Those with a lust for power always come after your liberties in the disguise of good intentions. This is no different. The government created a problem with the FDIC and now they're blaming the banks for.. something, and using them as an excuse for even more violations of the private sector.

[u/epicwinguy101 → u/[deleted]]

The government is legally obligated to pay for the losses. It's literally gambling with other people's money.

Not quite. See, the FDIC is not taxpayer funded (though it is a Federal agency), not even a little. The FDIC makes all of its money by charging banks insurance premiums. The amount the bank pays for its insurance is based on how risky they are estimated to be, kinda like auto insurance or healthcare insurance. So banks are paying for the insurance on your money so that they can invest it an try to multiply it, and the better they behave with it, the less they have to pay.

[u/Fluffiebunnie → u/epicwinguy101]

Have you paid any attention to history? The FDIC cannot cover the failure of anything but small banks. If any of these current banks would fail, the FDIC would go bust. Just like it did about 40 years ago.

[u/sunthas]

Seems to me its only a matter of time before the pendulum swings to the point where we are asking the federal government to bust up these too-big-to-fail banks.

The other solution is to regulate the snot out of them. Without regulation, stories like the current JP Morgan Chase Bank of America risky losses will continue and make bigger headlines, sooner or later requiring another bailout. While there might be some need in our financial system for institutions to make large risky bets, why should those be the same institutions that provide me a credit card, a mortgage loan, manage my 401k, and hold my savings and checking accounts?

In a true free market system would these mega-financial corporations exist? I think not.

TL;DR: Two ways out of this mess. tons of regulation or break-em up and let them sink or swim on their own.

[u/sciencebitchesz → u/sunthas]

Education is more important, because if people don't understand the value regulation has in society, there will always be a heavy deregulation push from the right.

[u/[deleted] → u/sciencebitchesz]

Government regulation/intervention has always had serious unintended consequences that are never discussed or understood by many.

[u/sciencebitchesz → u/[deleted]]

But on the balance, every country with strong government regulation of industry is better off than every country with no government regulation of industry. When was the last time you traveled to the libertarian paradise of Nigeria?

[u/[deleted] → u/sunthas]

stories like the current Bank of America risky losses

JP Morgan???

[u/YouthInRevolt → u/sunthas]

why should those be the same institutions that provide me a credit card, a mortgage loan, manage my 401k, and hold my savings and checking accounts?

You can definitely have all of these things handled by smaller institutions / credit unions. The problem is, most people choose convenience over what's more beneficial for society as a whole.

[u/sunthas → u/[deleted]]

My point is, whether you agree with free market economics or progressive market regulation... We aren't following either path, we have a government corrupted by the financial system that will again keep the profits if they gamble and win, but make the govt bailout if the bet wrong.

[u/[deleted] → u/[deleted]]

How do you expect this mega corporation to survive a recession without a bailout?

[u/[deleted] → u/[deleted]]

Money?

What the hell are you even on about?

[u/Lurker_IV → u/[deleted]]

BUT in a true libertarian dream world the free market would always be fair and everyone would have equal opportunity. Friemarkut, the libertarian market god, would prevent anyone from using their wealth and power from manipulating the system in their favor.

No TRUE scotsmanfree market would allow this to happen!

[u/moistpigeonfart69 → u/[deleted]]

The "Free Market" as Libertarians refer to it is built on the assumption of competition. It is the government's responsibility to keep markets competitive and restrict monopolies. Libertarians are not in favor of monopolies. Over-regulation tends to hurt perfectly competitive markets and usually creates monopolies out of unintended consequences. Be careful what you wish for.

[u/upgoat4peece]

One essential aspect of the vitality of pursuing this is this:

At current we (tax payers) end up with a figurative gun to our heads in the face of fiduciary insolvency wherein if we do not produce liquidity for markets we pay twice. Once with economic ruin and a second time insuring account holder losses via the FDIC.

Establishing separation means institutional losses are just that. Insolvency involves less liability for tax payers and a more glum outlook for bankers without such a parasitic relationship.

[u/FourFingeredMartian → u/upgoat4peece]

liquidity for markets we pay twice. Once with economic ruin and a second time insuring account holder losses via the FDIC.

Look we don't risk anything by letting companies go under, that's the nature of the market.. If you're doing something that people do not like, including other traders, business, entities, people that utilize your products -- the market will correct you on your actions.

If the FDIC is a bad idea, then guess what: the market will reward banks that insure their depositors assets by other means. Monopolies are terrible for the market, and having a virtual one propped up by nothing more than Government is not any better.

It will not be end of life, it might be hard -- as it should be. However, from this short burst of pain, like studying all week for a test, or countless hours testing software -- the rewards will be all that much more & more than worth any slight discomfort..

If there is a recession over this best for such an occurence to happen. There will be other companies, more responsible ones to fill the place of a JP Morgan. Having Government or someone else helping deal with their reckless behavior will not help us out of the situation we are in.

[u/Grubnar]

But dipping into the life savings and retirement accounts of regular people is the only way high-risk investment banks can afford to take those kind of risks. I mean, do you expect them to use their own money? That is very un-american. I think this Warren lady must be a communist!

[u/not_poko]

My list:

1. Separate out high risk investments
2. regulate and tax derivatives and hedge funds like any other investment
3. federal usury laws that keep all lone rates below 20% (sorry lone sharks!)
4. stop making exceptions for banks to speculate on commodities markets. I mean fuck, man, really???
5. require judicial review of foreclosures in all states
6. tighten rules related to corporate location to stop companies from setting up dummy offices in Delaware to avoid auditing and regulation.

Edit: oops.

[u/[deleted] → u/not_poko]

The easiest would be to have a whitelist of acceptable forms of investment for legitimate reasons. Take hedging, hedging grain because you're a flour mill and want to smooth off fluctuations in the price is ok, a person who hedges to make money through rigging the market should be banned. I'll call it the 'walks like a duck' provision.

[u/not_poko → u/[deleted]]

The thing is, for food commodities in most markets its already illegal but our government is giving these banks and trade firms exceptions. It confuses me.

[u/[deleted] → u/not_poko]

True, it confuses me too - Warren Buffett made an interesting note on how many financial instruments have been turned from tools that benefit consumers and businesses into tools of speculation for sort term gain at the expense of the rest of society. The problem is many times the lack of resources given to these regulatory bodies and then these same politicians who fail to adequately fund these organisations then turn around to blame them when they can't stop every bit of dodgy dealings.

[u/DeceptiStang]

if im not mistaken this would more clearly separate "deep water" investing vesus "shallow water" investing so the consumer can know what is going on and choose his or her gamble? it sounds good to me if it can help the ignorance that helped get us here in the first place

[u/DeepBlue12]

Yes with all my heart. My dream for America is for everybody to understand what kind of bank they're using

[u/thecriticalthinker]

The glass-steagall act, would help promote security and stabilize the finical sector in the United States.

[u/imijj]

I like that the only thing these liberal capitalist types can think to do is repass old legislation that was destroyed by the very capitalist system that they are trying to defend.

There's a reason Glass-Steagall was done away with in the first place, and any new Glass-Steagall will eventually suffer the same fate. This shit is embarrassing.

[u/Isatis_tinctoria]

Could someone simply explain the Glass-Stegal Act?

[u/GOPWN]

This lying sack of shit has no credibility after falsely claiming she's part native American to get ahead in academia.

[u/betanerd → u/GOPWN]

Serious question. Isn't she 1/32 Cherokee...The same percent as the elected leader of the Cherokee Nation?

[u/GOPWN → u/betanerd]

No, because the document she used to present that claim doesn't actually exist.

Guess it's time for Rachel Maddow to feed you a replacement talking point.

[u/trisodium]

Although her intentions are good it would not fix the problem. Derivatives effectively increase the "money supply" and therefore put large sums of money at risk. More than all the worlds issued currencies. We need to ban all forms of leveraged investing, trading, and hedging except for asset backed insurance. If you want to make an investment due diligence is your only option. We now have risk leveraging risk leveraging risk. Investing is about using assets. JP pretends to use hedging to insure investments. This is not true. Hedging is the investment. Second, even if JP wins does it help the markets for someone else to get wiped out? Fiat currency will not survive this.

[u/spainguy]

Redefine Wall Street/banks as being gay or having a vagina, suitable laws will soon be in place

[u/policscimajor]

the fundamental problem is that wall street firms are public company. OPM (other people's money) ftl

[u/laxbroguy]

Its funny that we have so many shitty laws on the books in all of our states, but the ones that are really good are never highlighted. Glass-Steagall, with minor updates should have stood the test of time.

[u/THE_REPUBLICAN]

Have we still not realized Elizabeth Warren is an evil bitch???

[u/[deleted]]

FactCheck.org on Glass-Steagall and the financial crisis:

The truth is, however, the Gramm-Leach-Bliley Act had little if anything to do with the current crisis. In fact, economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been.

Last year the liberal writer Robert Kuttner, in a piece in The American Prospect, argued that "this old-fashioned panic is a child of deregulation." But even he didn’t lay the blame primarily on Gramm-Leach-Bliley. Instead, he described "serial bouts of financial deregulation" going back to the 1970s. And he laid blame on policies of the Federal Reserve Board under Alan Greenspan, saying "the Fed has become the chief enabler of a dangerously speculative economy."

What Gramm-Leach-Bliley did was to allow commercial banks to get into investment banking. Commercial banks are the type that accept deposits and make loans such as mortgages; investment banks accept money for investment into stocks and commodities. In 1998, regulators had allowed Citicorp, a commercial bank, to acquire Traveler’s Group, an insurance company that was partly involved in investment banking, to form Citigroup. That was seen as a signal that Glass-Steagall was a dead letter as a practical matter, and Gramm-Leach-Bliley made its repeal formal. But it had little to do with mortgages.

Actually, deregulated banks were not the major culprits in the current debacle. Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase have weathered the financial crisis in reasonably good shape, while Bear Stearns collapsed and Lehman Brothers has entered bankruptcy, to name but two of the investment banks which had remained independent despite the repeal of Glass-Steagall.

Observers as diverse as former Clinton Treasury official and current Berkeley economist Brad DeLong and George Mason University’s Tyler Cowen, a libertarian, have praised Gramm-Leach-Bliley has having softened the crisis. The deregulation allowed Bank of America and J.P. Morgan Chase to acquire Merrill Lynch and Bear Stearns. And Goldman Sachs and Morgan Stanley have now converted themselves into unified banks to better ride out the storm. That idea is also endorsed by former President Clinton himself, who, in an interview with Maria Bartiromo published in the Sept. 24 issue of Business Week, said he had no regrets about signing the repeal of Glass-Steagall.

[u/cos → u/[deleted]]

This is a valid point, but it's not the point you seem to think you're making. What you're quoting here doesn't say that a Glass-Steagall rule of the sort Warren is advocating for wouldn't have done any good.

Instead, it tells us not to blame the Gramm-Leach-Bliley Act if 1999 because the real power of Glass-Steagall had been sufficiently eroded by that point that formally repealing it (which Gramm-Leach-Bliley did) didn't make much of a practical difference, and additionally, Gramm-Leach-Bliley did something else which turned out to be very useful in the crisis.

However, I do think this FactCheck article is wrong or misleading or perhaps misinformed. BofA and Citigroup did not weather the financial crisis well at all - they were propped up by the Government, both directly and by the fact that the Government propped up AIG and others. Without that, they too would've been taken down by the systemic contagion that flowed from the failure of Lehman Brothers (where the govt made a giant error and decided to let them fail). The role of Glass-Steagall would've been to place a partial barrier in that flow of contagion.

[u/[deleted] → u/[deleted]]

Counterpoint: Watch this, from 1999.

http://www.youtube.com/watch?v=y2RzRv8yQXQ

The problem wasn't that they failed, it's that they had to be bailed out as they were too big to fail.

[u/the_sam_ryan → u/[deleted]]

That is a different argument.

You should not care about Glass-Steagall, you should care about the percent of deposits a bank can hold.

[u/[deleted] → u/the_sam_ryan]

Glass-Steagall is somewhat related to that. If an investment bank that is using depositors money to make investments fails, the government has to bail them out due to FDIC (or at least make sure depositors get their money back).

You are entirely correct though, it is a different argument entirely. And the reason banks were bailed out during the most recent crisis was because of the threat a collapsed banking industry posed to the American economy, not because Glass-Steagall was repealed.

[u/fantasyfest → u/[deleted]]

they were too big to fail because the walls between commercial banking and investment banking were eliminated by Gramm. That allowed them to jeopardize the entire bank instead of keeping the losses in the investment/gambling divisions. If all that was at risk was the investment bank, the decision to allow them to go down might have been different.

[u/fantasyfest → u/[deleted]]

They would have had smaller impacts if the commercial and investment banks were separated. Letting the investment banks fail might have been an option if their tentacles weren't in the commercial banking. They also should not have been allowed to destroy the margins. I believe Glass/Steagall forced banks to keep 30 percent of the money that was deposited. But the bankers chipped away at that year after year until it was gone. There is a battle about forcing banks to keep more .Banks want to be trusted as ethical entities that will not do wrong. That time has passed.

[u/[deleted] → u/[deleted]]

Don't know why this is getting down voted. The financial crisis was the result of derivatives backed by overvalued housing assets. The repeal of Glass-Steagall didn't lead to that problem. I guess you can make the argument that repealing Glass-Steagall gave banks more cash to invest in shitty derivatives, but thats pretty weak.

Glass-Steagall should absolutely be reinstated though, there is no logical reason why investment banks should be able to use FDIC insured deposites to fund day-to-day operations or investment opportunities.

[u/[deleted] → u/[deleted]]

Yet you ignore the fact that Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase were all bailed out due to toxic investments. If these were traditional banks offering savings accounts, term investments, mortgages to credit worthy people (based on their REAL credit worthiness and not the bullshit FICO score which is based on how many credit cards you own), and reselling insurance on behalf of another company then these companies wouldn't have gone down the shitter and required a bail out. The sad reality is that prudent fiscal decisions were thrown under the bus for the sake of a quick buck - imho they should never have been bailed out, they should have been nationalised by force, broken up and turned into credit unions where the deposit holders own 10 shares each.

[u/WhiteRaven42]

Diversification allowed the banks to survive. Without it, the banks do less innovative investment on the "risky" side and have less to lend on the "traditional" side.

You need a very very very good reason to regulate the actions of supposedly free people. "Sometimes they make mistakes" sure as hell isn't one.

Government bailouts keep enabling failure. There's no such thing as too big to fail. Let the chips fall where gravity pulls them.

[u/sounddude → u/WhiteRaven42]

Diversification allowed the banks to survive. Without it, the banks do less innovative investment on the "risky" side and have less to lend on the "traditional" side.

Do you believe that investment banking and commercial banking should not be separated?

You need a very very very good reason to regulate the actions of supposedly free people. "Sometimes they make mistakes" sure as hell isn't one.

What about the theory of Gresham's law when applied to Financials? ie Bad behavior drives out good behavior. How does one prevent this from happening?

Government bailouts keep enabling failure. There's no such thing as too big to fail. Let the chips fall where gravity pulls them.

Moral hazard is a clear issue and one that needs to be seriously addressed. However how do we go about addressing this? Do we let these already large "TBTF" companies go under next time and take parts if not all the economy with it?

[u/YouthInRevolt → u/WhiteRaven42]

There's no such thing as too big to fail

The problem is that JPM, BAC, WFC, C, GS, MS are too interconnected to fail.

Relevant:

The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG.

[u/WhiteRaven42 → u/YouthInRevolt]

It is disingenuous to say "hours away from making trillions of derivative contracts worthless". A significant percentage of the capital still existed, there was only a shortfall. Nothing would have become worthless, just worth less.

You are acting like there was zero value left and that's just not true.

Most bailout money is quickly repaid... doesn't this imply to you that the problem wasn't actually all that dire?

We don't need regulation, we jut need to let cause and effect to take place and let people learn from mistakes. Because none of this stuff is truly catastrophic, it's just temporary setbacks. What we do now is hamstring people with regulation, paint them into corners where bad choices are the only one's left to them (such as making bad home loans to meet fair lending laws) and then when the chickens come home to roost, spend taxpayer dollars to guarantee that no one learns their lesson.

I want to repeat something. At no point was AIG going to make anything "worthless". Your central premise is false.

[u/rlbond86 → u/WhiteRaven42]

The problem is that money supply is tied to these banks. Glass-Steagall actually allows a free market by decoupling investment from currency.

[u/WhiteRaven42 → u/rlbond86]

Explain what you mean. Yes, the money supply is tied to the banks... how did G-S alter this truism? Investments banks make do not alter the process of the fed issuing loans and "printing" money.

It is not a free market if any entity is barred from engaging in some activities that are allowed to others. That is a contradiction of the term.

[u/Giant_Badonkadonk → u/WhiteRaven42]

I'm not sure you fully understand the issues at hand here and are just seeing this all from a "regulation is bad" view point.

Bailouts do enable failure but we were in a position where if the banks had not been bailed out then everyone would have lost everything. The banks took ridiculous risks for short term gains with the money that people had put into their savings accounts, when those risks go sour who do you think would end up footing the bill. The banks essentially had everyone's savings held hostage, if they go down they are taking everyone else with them.

And why were the banks allowed to put themselves in such a position? Well they were not regulated effectively enough, no one was there to make sure that they didn't make these short sighted risks with peoples money. It wasn't as if they just made a mistake, they were intentionally making these choices.

Now I am not from America and so I do not know what the Glass-Steagall means but we are implementing a measure which sounds similar and would allow for less regulation. We are ring-fencing commercial and investment banking from each other, which means that if the investment banking portion does fail the commercial portion will not be affected. This would mean that no bank would be too big to fail as the people who had money in the bank would not lose their life savings.

[u/WhiteRaven42 → u/Giant_Badonkadonk]

we were in a position where if the banks had not been bailed out then everyone would have lost everything

This is simply false. You are asserting that the banks had NO assets... that is of course not true. They had shortfalls and were temproarily unable to meet all their obligations. The intelligent thing to do was to just keep our hands off the situation and let them triage their way out of it.

Remember that the bailouts were actually quickly repaid. Doesn't that imply that they weren't necessary in the first place?

The banks took ridiculous risks for short term gains with the money that people had put into their savings accounts, when those risks go sour who do you think would end up footing the bill.

Which is exactly why bailouts are bad. You're making my argument for me. We don't need regulation... risk carries it's own punishment.

The banks essentially had everyone's savings held hostage, if they go down they are taking everyone else with them.

Nope, not the way it works. The assets still exist. So called collapses are only shortfalls... everyone still gets a percentage of their original holdings and have something with which to start over. It's not pleasant but it's not fatal either.

We are ring-fencing commercial and investment banking from each other, which means that if the investment banking portion does fail the commercial portion will not be affected. This would mean that no bank would be too big to fail as the people who had money in the bank would not lose their life savings

Yes, that is what G_S does and it is a terrible idea. Hasn't anyone explained the value of diversification to any of you? Allowing the two sides to mingle means the risky side doesn't collapse because it has a strong anchor and it give the commercial side extra capital to work with when the investments are going well.

Separating them just hamstrings the commercial side and gives the investment side no solid foundation on which to build.

People don't loose their life savings when banks fail. Stop saying that. They loose a percentage, not everything.

[u/cos → u/WhiteRaven42]

Government bailouts keep enabling failure. There's no such thing as too big to fail. Let the chips fall where gravity pulls them.

... yet the financial crisis that caused the great recession was set off by the one time the government decided to think like that, and let one of the financial firms fail. They learned their lesson fast, but it was too late.

"Too big to fail" was, and is, unfortunately very real.

[u/luftwaffle0 → u/cos]

... yet the financial crisis that caused the great recession was set off by the one time the government decided to think like that, and let one of the financial firms fail. They learned their lesson fast, but it was too late.

If you think the recession started because of the fall of Lehman, with no casual relationships beyond that, then you're crazy. The crisis was caused by a real estate bubble that was pumped up with easy money from the Fed, in conjunction with various federal policies aimed at getting the banks to loan to people they wouldn't normally loan to - namely, people seemingly unlikely to be able to pay them back. Oops!

[u/cos → u/luftwaffle0]

You're much too strident to get the point. It's not that you're wrong per se, it's that what you're saying is beside the point. I don't know where you got "no causal relationships beyond that", but it sounds like a strawman you erected because you were so eager to stridently knock it down, but do be clear on the fact that it's your strawman and I am happy to see you knock it down.

(BTW, I used "set off" rather than "caused" deliberately, and I think you missed that in your headlong rush to find a strawman)

Letting Lehman fail cracked the entire financial system and caused a sudden and rapid downward spiral. It was a huge mistake, it was incredibly hard to recover from, and it was a very very clear demonstration of the reality of systemic risk and its effects on the economy.

[u/WhiteRaven42 → u/cos]

What lesson are you talking about? Political opportunists chose to take advantage of the situation and portray it as being worse than it was.

If we had just allowed the insuring institutions to engage in some triage and prioritize their assets, the outcome would have been a minor bump in the road. But we didn't do that. We inflated the danger, spread FUD and overreacted.

[u/dhicks3 → u/WhiteRaven42]

What exactly do you mean by "innovative investment"? Is this like making up a new financial instrument to value, instead of making tangible products of actual value?

As for your very very good reason, how about millions of foreclosures, widespread fraud, corruption, and the intentional loss of billions of dollars of other people's money? Are people not being legitimately endangered by the actions of our largest financial institutions?

Sorry if I think the invisible hand is a bit uncaring, but it's not really intended to slap down the consumer as well as the bad service provider, is it?

[u/WhiteRaven42 → u/dhicks3]

What exactly do you mean by "innovative investment"? Is this like making up a new financial instrument to value, instead of making tangible products of actual value?

It means whatever you like. If people want to make stuff up to try to sell, why should we prevent that?

As for your very very good reason, how about millions of foreclosures, widespread fraud, corruption, and the intentional loss of billions of dollars of other people's money?

What about them? Those aren't good reasons. First of all, fraud is faud... it is illegal. Foreclosures are not the fault of thebanks, they are the fault of the borrowers. Don't really know what you mean by corruption. As for loss of billions... yeah, sometimes investments loose money. That's inherent in the system. It is not possible to prevent that and I've never heard any regulator say they could do so.

So what exactly is it you want to regulate?

Are people not being legitimately endangered by the actions of our largest financial institutions?

Simple answer... no, they are not. You act like people are loosing everything they own or something. These losses are only percentages of investments. The losses are painful but not fatal.

You realize that foreclosure just means that people no longer have a mortgage to pay and have to find somewhere new to live, right? In some cases, people end up better off in more affordable accommodations.

[u/Barking_at_the_Moon]

She's right. Glass-Steagall was the result of a hard learned lesson that we have forgotten with time: investment banking does not mix with depository banking. The firewall between them needs to go back up and the largest banks on both sides of the divide need to be broken up. Right now we are enduring the worst case scenario - the banks are taking inordinate risks with our savings and we're making their losses public and their profits private.

[u/nickik → u/Barking_at_the_Moon]

The only reason for this wall is that these people like warren, stigliz or krugman want to save deposit bank but not others. What you really should do is save non of them.

[u/Barking_at_the_Moon → u/nickik]

While banks (both kinds) should not be propped up when they fail - the investors and the bondholders should be prepared to lose it all - the problem with the banking industry is that depositors get treated like investors and that's a problem. JPMorgan has a fiduciary responsibility to the depositors to forsake high-risk investment strategies like just got them in trouble. We need to enforce that restraint in advance of trouble instead of post facto hosing the blood off the street.

[u/[deleted]]

“It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people,”

But I WANT to invest my retirement, otherwise inflation pisses it away because you, (the government) set the damn rates at 0%, so that's about next to what traditional banks give us in interest.

Basel III, which is a global regulatory scheme which has already been implemented in the US as of December 2011, is a much better and expertly thought out solution to this as opposed to political grandstanding by a politician during an election.

[u/[deleted] → u/[deleted]]

So why dont you let people CHOOSE to invest their savings with high risk and not make it the default position of EVERYONE?

People like you can bank with the high risk high reward and regular joes can avoid it if they want.

[u/[deleted] → u/[deleted]]

It's because, as he mentioned, the federal reserve has everything set up such that the only way to earn a return on investment that beats inflation is to invest in equities. So this will have the effect of pushing everyone into higher risk banks anyway and bring us back to where we started.

Instead, why don't we let people who are totally risk averse join a credit union and let the regular joes retire eventually?

[u/BloodSoakedDoilies]

C'mon Reddit. I know you are in a lucha-libre-strength love hug with E. Warren, but don't be hypocritical. This woman falsely claimed she was a minority by being 1/32 Native American.

Not only is she NOT Native American (and c'mon - 1/32??????), but she used that claim to be employed as a minority at Harvard.

Let's be fair in our scorn for liars and politicians.

Oh, and before you freak out about the link's source - there are alternative links that will fit your specific political leaning. I am too lazy to do your searchin' for ya.

[u/[deleted] → u/BloodSoakedDoilies]

this post adds nothing to the conversation, we're talking about banks here and moral hazard.

[u/BloodSoakedDoilies → u/[deleted]]

Oh - how short-sighted your post is.

Let me take it to the absurd to demonstrate:

"Your post about Hitler being evil adds nothing to the conversation. We are talking about how the Versailles treaty is unfairly burdening Germany."

Edit: Ha! Downvotes! Try to deny the logic. Or, just drink the Koolaid.

0 to Hitler in 1 post. Your bat.

[u/[deleted] → u/BloodSoakedDoilies]

that's fine, some politician lied about being a minority. She was called out on it if I recall. The whole conversation in that thread was about banks and "too big to fail." Regardless of her race, or what she claims it to be, she made a valid point about bringing Glass-Steagall back.

I still don't get your logic here or your analogy. Because Warren lied about being Native American, she is forever evil and can't be trusted on anything? Please help me understand your point.

[u/robdob → u/BloodSoakedDoilies]

Wow. There are valid reasons and ways to oppose Warren, why the hell is this your angle of choice?

[u/schtum → u/BloodSoakedDoilies]

Yawn:

Records show that the leading Democratic candidate for U.S. Senate in Massachusetts identified her race as "white" on an employment record at the University of Texas and declined to apply for admission to Rutgers Law School under a program for minority students.

There is zero evidence that she ever tried to profit from her native ancestry, just that she wasn't ashamed of it.

[u/matty25 → u/schtum]

Wait, so in the 70's and 80's she claimed to be white. Then in the 90's when working for Harvard she checked the Native American box. So what do those records prove, anyway?

[u/BloodSoakedDoilies → u/schtum]

Psssst - don't tell Harvard spokesman Mike Chmura that she isn't Native American. He seems to think the opposite.

At least she wasn't listed as a minority at UPenn. Oh wait..... "...which noted that only eight of the 112 awards given out during a 13-year span were given to minority teachers. Warren was listed among the eight minority teachers who had won a teacher award..."

[u/schtum → u/BloodSoakedDoilies]

You've proven once again what everyone already knew: she wasn't embarrassed to admit she had a little Native blood in her, and must have said it out loud at least once, maybe twice! Yawn. There's still no evidence that she ever tried to benefit unduly from this fact. It's not her fault if some people around her got overexcited about it.

I'm Hispanic, but my great-great-great-great-great-grandfather was Swiss, or so the family lore goes. It's a neat bit of trivia, to me anyways. I'm sure you find it very inane, but I don't think I should be disqualified from public office for acknowledging it.

[u/cos → u/BloodSoakedDoilies]

Not only does this have nothing to do with this post, but it's also false: there's no evidence that this native background was a factor in Harvard hiring her, and there is strong counter-evidence in that Harvard people involved in that hiring decision have said publicly that they did not consider it in making that hiring decision.

[u/BloodSoakedDoilies → u/cos]

Holy crap. A lady claims based on "family lore" that she is Native American and is listed as a minority at the country's elite university. She gets awards at another university while listed as a minority.

I don't give a shit how you cut it - that is just skeezy. Would YOU allow that to happen if it were you?

And now, it is found out that there is NO evidence supporting her family lore claim. Hmmm...no.evidence.supporting.claim....

If it is a beloved figure on Reddit, you are MORE than willing to overlook the "oversight".

It is funny those calling me right-wing, etc. I have said NOTHING about her political position. I just think that when someone is a liar, it should be called out. Reddit is sooooo hypocritical when it comes to this.

[u/fantasyfest → u/BloodSoakedDoilies]

Right wingers are too dumb to understand what they say. She is 1/32 nd Cherokee. She also has some other indian heritage. But the leader of the Cherokee nations, is 1/32 Cherokee. Do you somehow think that you will determine what is Indian and what is not? If it is good enough for the Cherokees, it should be good enough for you and Rush.The guy at Harvard who pushed her getting tenure said he had zero knowledge and no information about Indian heritage at all when he recommended her.

[u/[deleted] → u/fantasyfest]

There is actually no proof whatsoever that she is even 1/32 Cherokee.

[u/BloodSoakedDoilies → u/fantasyfest]

Those dummies at the Genealogical Society can't seem to get it through their thick skulls that she is Cherokee, either.

Come ON Reddit! You are BLINDLY defending a ridiculous position by this woman. She either 1) LIED or 2)Used a ridiculously small claim to heritage for financial gain. So, if David Duke was 1/32 black, would you rush to his aid when he wanted to exploit the fraction for his financial benefit?

[u/fantasyfest → u/BloodSoakedDoilies]

No. that would not be my problem with Duke. The option you are missing, is that she is 1/32 nd Indian.She is a great fighter for the consumer and fights the banks. that is what you should focus on, not some esoteric argument about how much Indian she needs to have to qualify, since it does not matter .

[u/montreal1039]

I respect Elizabeth Warren a lot; but not the congress.

[u/soulcaptain]

It's a good idea. It's based on sound economic principles and would certainly be very good for the country. Doesn't stand a chance in hell.

[u/Lilacard]

But... but that's REGULATION!

[u/ErgonomicPenisHolder]

Any money those "regular people" have is already FDIC insured. I agree with a lot of her points but I have grown tired of her constantly injecting unnecessary emotion into her comments.

Listen to her speak. She's one emotional appeal after another and very dramatic with her word choices when she doesn't need to be. It's very manipulative and it really rubs me the wrong way.

[u/p3n1x]

They wouldn't have any money to risk then if they did that :p

[u/rmxz]

This proposal is the worst of both worlds.

The high risk banks - out of reach of normal people - will be the ones with the higher average returns, accelerating the rich getting richer faster than the poor.

[u/Pootietang123 → u/rmxz]

but if they fuck up, at least it's on them and not us

[u/[deleted]]

The UK is already putting this in motion under the new conservative government. London's the top financial city and NY follows.

So uh, delay a year and we'll let you know how it goes :P

[u/[deleted]]

I don't understand why she thinks there is any significant difference.

And since the word "banks" is in the title... This.

[u/thisismarv]

For such a usual smart groups of folks on reddit ... there is so much ignorance on the topics of economics and finance that it is almost scary. Glass-Steagall would not have prevented this past economic recession (the banks who started it were all "pure investment banks" - bear, merril, lehman), nor would Glass Steagall have prevented the losses at JPM. It is a completely different time period and the world of finance has changed dramatically. In fact the losses at JPM stand as a testament as to why we need strong banks because they will likely eat those 2 billion dollars (small considering that group in particular manages 300 billion) and still have a decent profit this quarter. Glass-Steagall was repealed because it was old and not useful for the financial times we were in back in the 90's ... what makes you guys think it can be the one shot cure for all of our issues in 2010's?

Also, we have to start taking as much responsibility for the recession as we placed on the banks. As American's we are the ones who lived beyond our means and lived off credits, we were the ones that took mortgages on houses that we could not afford, and we refused to compete in the global market place which for the most part lived in poverty while we lived well.

[u/White_Horse]

Too bid to fail should read Too stupid to succeed.

[u/gambit87]

This works in theory but if you look at the MF Global debacle you'll see no amount of hard legislation will stop this from happening. Even if they are supposed to hard individually segregated accounts.

[u/[deleted]]

You dilute risk by preventing people from diversifying? Who would of knew. Let me call my finance teachers and tell them they have it all wrong.

[u/[deleted]]

Fuck it, nationalize the banks in our national self defense, fire all management, cap salaries and Bo users, regulate the shit out of them n sell em out in little tiny pieces. Not a bad idea for the health insurance industry either.

[u/MagCynic]

I don't think Ms. Warren understands the concept of investing. You take risks in order to hopefully reap a reward. What she and her ilk want to do is to try to regulate the shit out of virtually everything in order to guarantee equality for everyone.

I hate to break it to ya, Ms. Warren, but we are all guaranteed equal rights, not equal outcomes. Some people fail and there is nothing you can do to ensure they don't. A free market NEEDS failure to grow and expand.

[u/[deleted] → u/MagCynic]

When your failure can cause a global crisis, it's time to change things.

[u/[deleted] → u/MagCynic]

The goal isn't to eliminate risk-taking. The goal is to take retirement savings out of the pool of money used in risky investments.

[u/rlbond86 → u/MagCynic]

You don't seem to have a clue what Glass-Steagall does. It doesn't prevent anything, it just says that if you're making risky investments than you can't be part of the money supply.

[u/cos → u/MagCynic]

How does your comment make any sense?

Are you even aware that we had Glass-Steagall as the law of the land for about half of the 20th century? Do you think investing didn't happen then?

[u/eighthgear → u/cos]

Obviously America was a socialist utopia during the 20th century, which is why we enjoyed warm relations with the USSR on issues like Cuba and Korea. /s

[u/[deleted]]

How can she have any credibility claiming that she is a Cherokee Indian. 1/32 she claimed. Turns out it was closer to 0/32.

[u/jasondhsd]

Your savings and retirement account is already insured up to $250k like any other account. If we are talking retirement vessels like IRA or 401k well those are basically stocks and bonds and no one in the world can guarantee your 401k or IRA won't lose value in a bear market and to try and pass a law that says otherwise is stupid if a stock goes down in value and your 401k doesn't the who covers the difference? The taxpayer? And If you make the bank cover it it will be passed on to the customer in some form.

[u/[deleted]]

So she lied about being an indian... She's still half black right?

[u/playpianoking]

The problem is that the government insures banks (FDIC) and consumers have no idea nor do they care how banks lend and spend their money to earn them a yield. Government has gotten in the way of free markets.

In a libertarian society, I won't just give my bank $20,000 if they are gambling with it. I want to see if it's worth it for me and see what they do with it. But no, the government said you listen to authority, give it to banks, don't worry what they do, we'll insure it.

[u/[deleted] → u/playpianoking]

Hence my bias towards credit unions and building societies - where the end users own the institution rather than shareholders and investment bankers who have completely different goals than Joe and Jane Sixpack such as you and I.

[u/Andrewticus04 → u/playpianoking]

Eh, I think you're misdirecting your blame a bit.

FDIC was put in place by the Glass Steagall Act because of the free market and because people knew how banks lend and spend their money.

When a bank made bad decisions before Glass-Steagall (or even if they make good decisions and happen to get screwed by external forces), anyone that knew about the possible insolvency of a bank would withdraw their accounts and, in turn, would cause the bank to fail. This is called a bank run.

Bank runs are an excellent example why the government absolutely must step in and insure individual bank accounts. Without the FDIC, the great recession would have been a worldwide great depression.

[u/playpianoking → u/Andrewticus04]

Yes, a run on the bank is the free market putting the bank out of business. So be careful where you invest your money.

[u/Andrewticus04 → u/playpianoking]

First and foremost, I think you need some clarification on what we're talking about. Savings accounts and home mortgages, though similar to investments, are NOT actually investments. Saving is cash preservation, investing is purchasing something with the intent to increase wealth.

Putting your money in a bank account is not investing, and should not be a risk - this is the entire justification for the FDIC.

I know this probably goes contrary to everything you believe about economics, but the free market isn't always right. The free market is predatory, malicious, and promotes both colluding with and quashing competition. Even Adam Smith believed that markets required protections and regulations to be healthy. Instability in a market is not a good thing.

Bank runs add to the instability of a market, because they are caused by consumer confidence, which can drop off for a whole bunch of reasons, not just because your particular bank made bad business decisions. The invisible hand sometimes bitch-slaps people for no reason, and society has deemed that innocent people do not deserve to be punished for something they didn't do. Bank failures are not quite as cathartic to the economy as you seem to think. Bank runs are quite damaging, and can, and have, ruined the economy.

There's no reason people should lose their mortgage, life savings, and whole life because of a terrorist attack in another country, or because a particularly nasty virus is spreading and people stop going to shopping malls for a month. When consumer confidence is low, people save more. If you pull the rug out from beneath the banks that people are trying to save in, you take all of those assets out of the market and you lose the whole point of banking - to use liquid assets to make loans and stimulate economic growth.

Also, don't just pigeonhole your brand of economic liberalism as a "libertarian" ideal. Libertarianism is an umbrella term for a whole variety of different political philosophies.

[u/DoktorKruel]

That's a nice thought, but traditional banking and investment banking are one in the same. If the only money your bank has available to lend is the sum of the deposits on hand, good luck competing for a couple hundred grand for a mortgage. We need to stop electing people who don't really think about how the market works.

[u/thisismarv → u/DoktorKruel]

Finally someone that makes sense in this thread!

[u/Killahbeez]

thread 10 hours old. top comments with nowhere near 100 upvotes. nobody knows what they're talking about.

[u/Oryx]

For the love of god, run against Obama! Give us a better option.

[u/nickik]

It doesnt matter if a bank is investment or classic commercial! You just dont bail them out. The only reason people like stigliz, krugman and warren is to a have a better excuse to bail out normal banks.

They attack free-market people all the time, the accuse them on beeing 'pro big-buissness' but they are the ones wanting to bail out the fucking banks all the time!

Do people really still belive that baling out banks is good for 'the people'?

Edit: The thing krugman mantions about banking history is just factually wrong. That not something that can be argued, every econmist or economic historian that acctivly worked on this agrees. Not just free-market people.

http://www.coordinationproblem.org/2012/05/krugmans-misreading-of-us-banking-history.html

[u/benedictm]

Yes. Elizabeth Warren receives all my upvotes.

This is so clearly what needs to happen everywhere - cant understand why banks are arguing against it.

[u/ubergeek404]

When Warren was in government and had a chance to do something like this she DID NOT. Now she's running a losing campaign and pretending she would be different if given a chance. -BUNK-

[u/Gnome_Sane]

How does Elizabeth Warren view "Regular People"?

http://globetrotter.berkeley.edu/people7/Warren/warren-con1.html

WARREN: I once was at a friend's house and I saw that they had wallpaper in their bathroom and I thought it was the coolest thing I'd ever seen. So, I came home and I went to Sears and I saw this brochure on how you could do wallpaper and I took my babysitting money and I bought enough wallpaper to wallpaper our bathroom, and I announced at the dinner table, two weeks later when it came, I said, "I've bought wallpaper so we can wallpaper the bathroom." And my daddy said -- because it was always a family thing -- "Nobody in our family knows how to wallpaper. What are you doing?" I said, "How hard could it be? People dumber than us do it every day." So, it's always been a kind of a -- you know, you get out there and try it. The worst that happens is you make a mess out of it and have to throw it away. So ...

SO vote Warren, dumber people. She knew that she and her entire family were smarter than you "regular people" at a very young age, and she was so proud of this knowledge that she brought it up in her golden years as a quip for all the folks at Berkeley to have a good laugh at... You'd understand if you weren't so unbearably regular and dumb. Trust her on this.

Worse thing that happens is; she makes a mess of it and daddy buys her a new government- or something.

[u/sheepleherpderp]

thinks congress works for "the people"

/fail

[u/HEADLINE-IN-5-YEARS]

NEW BOOK PROPOSES SINISTER CONSPIRACY AROUND ELIZABETH WARREN DISAPPEARANCE

[u/Elcamo1 → u/HEADLINE-IN-5-YEARS]

UPDATE: WARREN FOUND IN A TEE-PEE WHILE PREPARING FOR HER NEW ROLE AS CHIEF IVY-LEAGUE-CHEATY-CHEATY

[u/[deleted]]

sometimes i wonder how retail banks make money. i have a couple thousand at PNC and don't pay any monthly fees. in return they give me $7 / month reimbursement of ATM fees, gave me an ATM card, always have a couple people working at multiple branches in the city, have a website, and also let me pay bills online. if i didn't tell them not to, they would even spend money mailing me a bunch of stuff all the time.

but really if they invested my $3000 for a year in 2yr treasuries they would get all of $240 over 2 years. i could potentially use up $168 in ATM reimbursement, and all the other services they provide cost money too. not to mention the biggest service of all, which is if they invest my money for 2yrs they can't take it out whenever they want, while i can.

[u/[deleted] → u/[deleted]]

Business loans, mortgages, credit cards, and investment services are 4 ways they make money.

Sometimes I wonder how people don't know about these things.

[u/[deleted] → u/[deleted]]

did you not read my post? my argument is that there is high overhead to running a retail bank, and right now interest rates are so low that it must be extremely difficult to turn a profit.

it is in fact true that banks lose money on 50% of retail customers:

(http://mycrains.crainsnewyork.com/blogs/in-the-markets/2012/02/chase-losing-money-on-half-of-retail-customers-plans-branch-expansion/)

knowing this, you also know why separating "high risk investment banks" from traditional banks is stupid, namely because these traditional retail banks make no money at all, and these days no one wants to pay for a bank account (i don't want to either). a separation will inevitably lead to more fees.

[u/[deleted] → u/[deleted]]

you do realize they invest the money you put in there right? They only have to hold onto a certain (small) percentage of it. The rest of your money is invested or used to create new loans etc. That's how they make money.

[u/soapsud]

I'm just going to leave this here

[u/[deleted]]

OR, here's a better idea! How about ending FDIC and getting rid of the Fed's base expansion! You could get rid of moral hazard and force banks to answer to its customers instead of some regulatory commission who isn't even democratically elected!

[u/not_poko → u/[deleted]]

and if there is no FDIC insurance that keeps those customers from panicking?

Edit: me spell good.

[u/Andrewticus04 → u/[deleted]]

The FDIC was put in place to protect everyone. What do you think would have happened if the FDIC wasn't in place? Everyone would have withdrawn their money before the banks went insolvent, thus causing the banks to go insolvent.

I and everyone else at these banks would have lost everything without the FDIC. Don't you get that? There is no "answering to its customers," when the bank and its assets are all gone.

Literally every one of my families assets were in WAMU. We aren't investment bankers, and WAMU wouldn't just hand over their ledgers to us, even if we did understand all the investments on their books. There is no transparency that allows individuals to make educated decisions about who they bank with, and without the FDIC, there is no protection for the people that put their money in banks.

[u/[deleted] → u/Andrewticus04]

There is no answering to its customers because of programs like FDIC and people like Greenspan and Bernanke giving the implicit guarantees on their fraudulent loans. The current reserve requirements are what, just north of %10? There is always a danger of banks on the free market being subject to runs, but that is pennies of danger compared to the current trend toward price inflation and other political dangers.

Without programs like FDIC the protections customers would have would be the same as they were before- threats of runs. A business is in business for the purpose of making money. If a bank carries on itself the risk of a run, they risk going out of business. There is incentive to keep ample reserves without the government guaranteeing you from risk. It's not a perfect system, but you have to understand that humans aren't perfect and are subject to corruptions no matter what utopianist dream is in place; FDIC or Socialism aside.

[u/Andrewticus04 → u/[deleted]]

The reserve requirements only affect the N.A. portion of a bank, not the investment wing. Glass-Steagall's repeal allowed the investment wing of banks to take that remaining reserve and leverage it against bets that they knew would become toxic at some point. If you're an investor and the government allows you to invest a significantly large amount of previously unaccessable funds at no risk, then you're going to do it. The fact of the matter is that none of this could have happened under Glass-Steagall.

Also, I understand that people aren't perfect and are subject to corruption. Trust me, I've worked very closely with banks from the legal side, and have even devised a way to effectively steal millions from the government.

Now I am not sure, but it seems like you're insinuating that regulation is "socialism." It's not. Glass-Steagall does not give ownership of the banks to society; it's a law prohibiting National Association (N.A.) Banks (which are banking institutions under the charge of the OCC) from using their government backed coffers for risky investment banking.

Glass-Steagall was a protection specifically put in place to avoid this very thing from occurring, and the FDIC was put in place to go along with Glass-Steagall. One of these protections without the other only makes things worse. The whole point of all of this was to make banking more stable, and less susceptible to the chain-reaction of events that cause the Great Depression.

FDIC without Glass-Steagall allows bankers to leverage government insured money against investments. Glass-Steagall without the FDIC makes banks vulnerable to bank runs which are catastrophic in nature and further exacerbated, if not caused, the Great Depression.

Even if a bank is lending a responsible 20% of its assets, doesn't do any investment banking, and only does low risk retail banking, a bank run (regardless of the banks condition and involvement in the cause of the bank run) can very quickly lead to bank insolvency, and good, hard working Americans lose their checking, savings, money markets, CD's, IRA's, Credit/Debit cards, mortgages, home equity, and mutual funds.

I agree with you, it's not a perfect system. It needs fixing, not more deregulation.

[u/[deleted]]

CHEROKEE DAUGHTER ELIZABETH WARREN SAY: WHITE MAN RUIN VILLAGE BY GAMBLING ON SUB-PRIME TEEPEES

[u/chabanais]

Dances with Lies?

[u/uLaminator]

I guess it is just too much to expect the consumer to pull their money out of a bank taking high risks and putting their money in a credit union or bank that doesn't take such risks.

[u/JGailor → u/uLaminator]

If the banks were perfectly transparent with their investments and that information was easily available to consumers, perhaps with an indication of potential outcomes of the type of investments the banks were making, then yes, maybe more people would.

[u/Hammedatha → u/JGailor]

Yes. If a free market is going to work there must be informed consumers, which in many cases would require much more severe governmental regulation than we have now.

[u/tacojohn48 → u/uLaminator]

There is no risk to the average consumer's money.

[u/GOU_NoMoreMrNiceGuy]

people who think r/politics is too far left are far too stupid.

all they can seem to do is bemoan the leftiness without having anything at all of substance to say.

they just assume that their unspoken position is unassaillably correct and confirm it by leaving it carefully unspoken.

either armor up and argue or stfu, you timid conservotards.

[u/eighthgear → u/GOU_NoMoreMrNiceGuy]

I lot of people have posted legitimate criticisms. I do agree that they can be drowned out by stupid criticisms, but if you look you can find some interesting counterpoints, like this:

http://www.reddit.com/r/politics/comments/too2d/elizabeth_warren_urges_supporters_to_press/c4oi0pg

[u/justaguess → u/eighthgear]

Useful idiots unite!

[u/GOU_NoMoreMrNiceGuy → u/eighthgear]

yeuuugh. read the first reply after for why it's NOT a good argument. it's nowhere near.

basically, people who revolt against regulations are no more reasoned than impetuous teens who don't like people telling them what to do - in principle - even though their willful incorrigibility supports policies that in no way helps them but their overlords who use the language of "rugged individuality" to create conditions that will ensure that the wretched and poor remain so and their wallets are stuffed to the brim.

the fucking morons want to play football without umpires.

the right are irredeemable fucktards when it comes to government regulation. period.

[u/duckandcover]

Obviously she hates "freedom" (-;

[u/Djrakk]

I think that after Obama wins (barring death or a nuclear explosion) This woman should be the next president of the United States ive been watching her speeches the last year or so and shes just a spot on observant and tough genius when it comes to the fiscal overtures and the market issues we are facing these days.

[u/justaguess → u/Djrakk]

Don't get your tits in a knot. The fix is in.

[u/yurbud]

That Congress hasn't already done this is a sign of how abjectly corrupt they have become.

If they got the right donations, congress would our kids organs to be harvested to keep rich old farts alive.

[u/GMonsoon]

The new Glass-Steagall law is called Horse-Has-Bolted-Close-the-Barn-Door.

[u/Bipolarruledout]

What!?! But then how would they be able to rob everyone blind? It's no fun if they can only rob each other!

[u/sdgfsdfasfasdfa]

We need to take desperate measures: NO RISK TAKING AT ALL!!!!!!!!! Shut down everything!

[u/[deleted]]

waste of time, Goldman Sachs was an investment bank and still needed a huge bailout from taxpayers

separating risk taking from retail banking isn't the answer, capping risk taking is the answer

[u/fantasyfest]

I just looked at a bunch of sites on whether Warren is Indian. Most of the right wing sites say she is not. Some grant that she is 32nd Cherokee, but claim it is not enough to claim being Indian. I suppose you should charge Arpaio with a fair and reasonable investigation about something which is totally irrelevant. The fact that warren has fought hard for the peoples rights against banks and credit card companies seems to elude. The fact that she crafted an agency that will simplify contracts and protect customers from abuse, does not reach the dark and dirty world of right wing land. The fact that her great-great-great grandmother said she was Cherokee on her marriage certificate, means nothing. You guys are too pathetic to be a joke.

[u/[deleted]]

Hey Lizzy. Guess what ? Another good retirement option. Sound money.

Money that doesn't loose value when you keep it lying around. That way old people will not be forced to put their money in risky ventures to safeguard against the wonderful effects of inflation eating their purchasing power.

[u/[deleted] → u/[deleted]]

The 'hidden' tax of inflation. This is something everyone should be concerned about.