The USFG should reinstate the Glass- Steagall Act.

The Depression If you review R2 The Depression, it is labeled background information to describe the purpose of enacting Glass-Steagall in historical context for the readers’ benefit. “History repeats itself, first as tragedy, second as farce.” Karl Marx. This is certainly the case with the repeal of GSA. In your contention in R2 you addressed Glass-Steagall being an overreaction to the Depression,“whether or not the public was “duped” into investing in securities by these banks is yet to be proven.” The duping of the public was more than adequately proven to be true as testified by the very bankers who were engaged in the activity; background information that you deemed pertinent in your contention, is now dismissed? Your statement that I prove “that is commercial banks engaging in speculative activity, were specifically to blame for underwriting lower-quality securities, which would expand the housing bubble…” has been addressed, as a supply chain of feeding the wolves in R3, but I will reiterate in this round. *My BoP is not based on low-quality securities or the housing bubble, but the justification behind why Glass-Steagll should be reinstated; do not mislead the readers. If commercial and investment banks were not so eager to create mortgage back securities via sub-prime mortgages the chain reaction through the banking sector would not have occurred. Had commercial banks been under GSA they would not have been allowed to create MBSs or to purchase CDS; more on this later. (Review Clout R1). Another wave of a hand disregarding the pressures of banking lobbies and their bloated budgets as it undermines the democratic process turning politicians into puppets for their cause. The financial sector is in the top 10 in spending in lobbying dollars http://tinyurl.com... . While in office the lobbies make lucrative job offers to elected officials for when they leave office. In comparison to the salary of an elected official, often millions in future salary is promised. To say that our elected officials are not influenced by future employment prospects while he/she conducts the business of government is naïve. There is a direct connect between actions of elected officials that ingratiate the aims of their future employers. http://tinyurl.com...; “The Financial Crisis Inquiry Commission Report,” 2011 stated: “It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than 1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.” http://tinyurl.com...; “To say that these lobbying efforts are grounds for the reinstatement of the legislation just for the sake of opposing the banks is absurd.” I have not stated such a premise. The point made that is GSA’s repeal was due to lobby efforts and its reinstatement is being thwarted by banking lobby interest; purchase of influence. To make an assumption lobby influence alone is reason to reinstate GSA is dumb. Barring risky investment behaviors on the commercial side of banking to protect deposits and not have the government bail banks out on the backs of citizen’s taxes is the bulk of the impetus to reinstate GSA. John Reed, former CitiBank CEO, who spent money to lobby against GSA and helped draft the “Gramm–Leach–Bliley Act/Financial Services Modernization Act of 1999,” admitted the GSA’s repeal was a bad move in hindsight.http://tinyurl.com... On the election front there has been much to do about reinstating GSA, Bernie Sanders and now Trump/RNC. Whether or not this is just political posturing to gain votes or will actually move forward remains to be seen; but public will is certainly behind the premise.http://tinyurl.com... “My opponent also quickly skims over the fed's low interest rates, which could also be considered a main cause for the crisis. These 1% rates were the main drivers for margin purchasing” Grasping at straws. The early 2000s lowing of interest rates was for stimulating the economy with low interest loans for business investment & growth, as well as encourage home purchases after the slow down resulting from 9/11 http://tinyurl.com..., http://tinyurl.com... Banks, instead of making loans to businesses to stimulate economic growth took Fed money and hedged their bets on MBSs/CDSs for a quick return and to bolster profits reaped from trades and fees. The Fed rate of interest did not force banks to leverage themselves they chose to take these risks. 2008 My opponents main contention with bank deregulation appears to be the “lock and key relationship” between commercial and investment banking entities, from which triple A ratings were given to low-quality securities that in turn attracted investors who were under the assumption that these ratings were credible. My opponent is confused. Deregulation and repeal of Glass-Steagall set in motion a chain of events. The proliferation of sub-prime mortgages was the first domino in line. With GSA’s repeal commercial banks were now buying (leveraging deposits) and selling MBSs/CDOs (collateralized debt obligation) insured by CDSs beyond their equity requirements. These products are outside the purview of SEC and Commodity Futures Trading Commission regulatory standards in the shadow banking industry; “a pass” given only to investment banks and brokerage houses when GSA was in place http://tinyurl.com... . In 2008 commercial banks held $903 billion of these products, Citibank/Group being the largest holder. Derivatives were not covered by FDIC, but insured by other financial institutions in the form of CDSs. As we know the bottom fell out when the MBSs tanked, issuers of CDSs had insufficient funds to payout; commercial and investment banks could not cover the losses http://tinyurl.com.... The ”lock and key” relationship was between the banks and rating agencies. The ratings gave a false sense of security to investors. “The Financial Crisis Inquiry Commission Report” found and stated “Put simply and most pertinently, structured finance was the mechanism by which subprime and other mortgages were turned into complex investments often accorded triple-A ratings by credit rating agencies whose own motives were conflicted.” http://tinyurl.com... Commercial and investment banks that sold derivatives required good credit ratings to enable them to sell their products to investors. The credit rating agencies Standard & Poor’s and Moody’s, became big players in receiving large fees in exchange for positive ratings which facilitated their own expansion goals. Standard & Poor and Moody’s were charged by the Justice Department with fraud in grading derivative products they knew would default. They were paid by Wall Street and gave the triple-A ratings Wall Street wanted; investors were again misled as done prior to GSA 1933. http://tinyurl.com... “…it's clear that the fed's low interest rate was a more underlying problem during the crisis.” No, addressed earlier. The Fed and regulatory agencies ignored and failed to act upon the growth of the sub-prime mortgage and liar loans (mortgages requiring no income verification or down payment) issues which were the root of the problem. - Mortgages that fed the pipe line of investor demand for additional MBSs, resulting in downward pressures from banks upon on mortage brokers to secure additional mortgages. But when the prime-mortgage sector dried up, sub-prime filled the demand, hence the growth of that market and subsequent credit defaults that barelled through the finacial industry in 2008. Greenspan had the view that the banks would self-regulate and monitor their risk, he was wrong. Complicity due to inaction despite warnings, not interest rates was the fault of the Fed. http://tinyurl.com... Capital Requirements/Glass-Steagall As stated previously, commercial banks skirted existing capital requirements in the shadow banking sector of derivatives which was/is free from regulation and oversight. “For commercial banks, the benefits were large. By moving loans off their books, the banks reduced the amount of capital they were required to hold as protection against losses, thereby improving their earnings” ; looked good in the beginning but turned out too good to be true. http://tinyurl.com... . Taking in deposits to make loans was of lesser value due to fees for originating/selling loans and issuing mortgage-backed securities. New higher capital requirement will do nothing to alter off-balance sheet trades; this was the last piece of the domino cascade to fall in 2008 which crashed banks resulting in bail outs. It is estimated that there is now $5 trillion in derivatives, equaling a third of the US economy which values do not come into play under capital requirement rules; BofA has an estimated 1.5 billion above reported assets. http://tinyurl.com... Capital requirements will not offer any protection, especially in the commercial banking sector which is allowed to deal in such products after the repeal of GSA “The FDIC doesn't receive any tax dollars; instead it's funded by the premiums paid bybanks and thrifts for insurance coverage on deposits.” http://tinyurl.com... in turn are required to have sufficient equity to cover minimum capital requirements. The kicker is with the lift of GSA traditional commercial banks were using deposits against derivatives in shadow banking which was contrary to FDIC’s intent and former GSA rules. Under GSA this muddled situation would not have occurred in the first place; reasoning why it should be reinstated. I look forward to my opponent’s defense.