Financial Sector Deregulation Part IV
Many teabaggers buy into the theory that the crisis was created by looser lending to minorities.
This contention is patently and clearly false, as the GLBA amendment did not make minority lending any more difficult or easier for the financial institutions. The smaller banks had to lend to minorities using the same criteria as before, however, they would be reviewed less frequently, every 5 years vs 3 years.
The Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements." It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.
The White House had insisted that the President would veto any legislation that would scale back minority-lending requirements. Ultimately, the following provisions were drawn up and both the White House and Gramm said they could accept them:
Banks will not be able to move into new lines of business unless they have satisfactory lending records.
Small banks with satisfactory or excellent track records of lending to the underserved would be reviewed less frequently under the Community Reinvestment Act. As a practical matter smaller banks are reviewed about every three years.
The deal struck today allows all rural banks and banks with less than $250 million in assets to undergo examination once every five years if their last exam resulted in an "outstanding" grade and every four years if they last scored "satisfactory."
The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999-2001) signed into law by President William J. Clinton which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies.
The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.
The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate.
The legislation repeals the Glass-Steagall Act, or, as it is formally known, the Banking Act of 1933, which broke up the powerful House of Morgan and divided Wall Street between investment banks and commercial banks. It also makes significant changes to the Bank Holding Company Act of 1956, which had restricted what banks could do in the insurance business.
The Glass-Steagall Act was enacted after the stock market crash of 1929 and the ensuing banking crisis and Great Depression. On the day it was signed, along with the National Industrial Recovery Act and other measures, President Franklin D. Roosevelt called the package "the most important and far-reaching legislation ever enacted by the American Congress."
The idea behind Glass-Steagall, named for the two lawmakers who wrote it, was that confidence in America's financial house could best be restored if bankers and brokers stayed in separate rooms.
First, it would reduce the potential conflicts of interest between investment banking and commercial banking that were thought to have contributed to the speculative frenzy in the stock markets. Under the 1933 Banking Act, commercial banks could receive no more than 10 percent of their income from the securities markets, a limit so restrictive that most simply abandoned business on Wall Street.
Second, it would provide a safe harbor for the money of ordinary Americans by enabling them to put their money in accounts that were protected by deposit insurance and insulated from more speculative investments like stocks.
Although Clinton signed the bill, the congress was a majority Republican at the time. Further erosion of Glass Steagall had occured under all adminstrations, but most of the damage occured mainly under Republican majority. President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis. Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis.
They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, but under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly."
Nobel Prize-winning economist Paul Krugman has called Senator Phil Gramm "the father of the financial crisis" due to his sponsorship of the Act. Nobel Prize-winning economist Joseph Stiglitz has also argued that the Act helped to create the crisis. An article in The Nation has made the same argument.
Contrary to Phil Gramm's claim that "GLB didn't deregulate anything", the GLB Act that he co-authored explicitly exempted security-based swap agreements (a derivative financial product based on another security's value or performance) from regulation by the SEC by amending the Securities Act of 1933, Section 2A, and similarly the Securities Exchange Act of 1934, Section 3A.
Hattip to the Senate and Wikipedia
This contention is patently and clearly false, as the GLBA amendment did not make minority lending any more difficult or easier for the financial institutions. The smaller banks had to lend to minorities using the same criteria as before, however, they would be reviewed less frequently, every 5 years vs 3 years.
The Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements." It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.
The White House had insisted that the President would veto any legislation that would scale back minority-lending requirements. Ultimately, the following provisions were drawn up and both the White House and Gramm said they could accept them:
Banks will not be able to move into new lines of business unless they have satisfactory lending records.
Small banks with satisfactory or excellent track records of lending to the underserved would be reviewed less frequently under the Community Reinvestment Act. As a practical matter smaller banks are reviewed about every three years.
The deal struck today allows all rural banks and banks with less than $250 million in assets to undergo examination once every five years if their last exam resulted in an "outstanding" grade and every four years if they last scored "satisfactory."
The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999-2001) signed into law by President William J. Clinton which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies.
The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.
The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate.
The legislation repeals the Glass-Steagall Act, or, as it is formally known, the Banking Act of 1933, which broke up the powerful House of Morgan and divided Wall Street between investment banks and commercial banks. It also makes significant changes to the Bank Holding Company Act of 1956, which had restricted what banks could do in the insurance business.
The Glass-Steagall Act was enacted after the stock market crash of 1929 and the ensuing banking crisis and Great Depression. On the day it was signed, along with the National Industrial Recovery Act and other measures, President Franklin D. Roosevelt called the package "the most important and far-reaching legislation ever enacted by the American Congress."
The idea behind Glass-Steagall, named for the two lawmakers who wrote it, was that confidence in America's financial house could best be restored if bankers and brokers stayed in separate rooms.
First, it would reduce the potential conflicts of interest between investment banking and commercial banking that were thought to have contributed to the speculative frenzy in the stock markets. Under the 1933 Banking Act, commercial banks could receive no more than 10 percent of their income from the securities markets, a limit so restrictive that most simply abandoned business on Wall Street.
Second, it would provide a safe harbor for the money of ordinary Americans by enabling them to put their money in accounts that were protected by deposit insurance and insulated from more speculative investments like stocks.
Although Clinton signed the bill, the congress was a majority Republican at the time. Further erosion of Glass Steagall had occured under all adminstrations, but most of the damage occured mainly under Republican majority. President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis. Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis.
They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, but under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly."
Nobel Prize-winning economist Paul Krugman has called Senator Phil Gramm "the father of the financial crisis" due to his sponsorship of the Act. Nobel Prize-winning economist Joseph Stiglitz has also argued that the Act helped to create the crisis. An article in The Nation has made the same argument.
Contrary to Phil Gramm's claim that "GLB didn't deregulate anything", the GLB Act that he co-authored explicitly exempted security-based swap agreements (a derivative financial product based on another security's value or performance) from regulation by the SEC by amending the Securities Act of 1933, Section 2A, and similarly the Securities Exchange Act of 1934, Section 3A.
Hattip to the Senate and Wikipedia
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