The USFG should reinstate the Glass- Steagall Act.

http://www.youtube.com... Background The Depression In the 20’s credit and loan banks were booming, allowing individuals to borrow money and take out credit (margin purchaes, paying 10-20% of stock value borrowing 80-90%) to invest in the stock market with the expectation that large gains were to be made. The market shy rocketed 400% from 1923-1928 due mostly to plethora of margin purchases not economics principles; it resulted in very overvalued stock. When companies’ earnings were less than stellar in comparison to stock value, stock holders began to sell which dominoed throughout the system bringing about falling share prices and market crash. On the banking side they were left holding the bag on the credit issues. People ran to withdraw bank deposits, but banks had insufficient cash (capital) to redeem due to their liabilities in margins credits and loans; collection on these were futile due to the crash. Savers lost their money and many banks went bankrupt. The banks that did survive after the “run” issued few loans that resulted in low investment which further stymied the economy http://tinyurl.com.... Glass-Steagall Act 1933 This Banking Act prohibited commercial banks from participating in investment banking and created the FDIC. This was seen to be essential since banking investment activities contributed to the market crash due to too much speculation; banks taking risks with customer’s money. Banks were giving loans to companies then in turn customers were cajoled into investing in the same companies, a conflict of interest. The FDIC’s purpose was to restore public confidence in banks by insuring deposits http://tinyurl.com.... Since the 70’s GSA restrictions were slowly whittled away with progressive banking deregulation. Until the final straw when Travelers/ Salomon Smith Barney (investment) and Citicorp/Citibank (commercial) proposed a merge. The government gave its tentative approval. Both banks agreed to abide to GSA, but lobbied banking regulators and government officials for its repeal at a cost of $200 Million in lobbying efforts and $150 Million in political donations. It worked and resulted in the Gramm-Leach-Bliley/Financial Services Modernization Act of 1999 (Citigroup actually wrote the repeal) http://tinyurl.com.... This permitted the merge and mixing of and investment securities firms, commercial banks, and insurance companies. Together with a very low Fed interest rate of 1% and regulators turning a blind eye to anti-monopoly laws, larger banks swallowed up smaller ones. Big banks dominated the markets. Credit was issued in mass; the credit bubble grew until it burst. This was the beginning to the 2008 taxpayer-financed bail-outs http://tinyurl.com..., http://tinyurl.com.... 2008 With low interest rates and deregulation, banks took a nonchalant attitude toward risks. Banks were dolling out mortgages wily-nilly to those with questionable credit while the housing market climbed. Low interest rates and the egging on of Alan Greenspan to consumers to take advantage of the low rates fueled the frenzy. These mortgages were bundled as low risk securities (bundles of debt) by the big financial houses and backed by Collateralized Debt Obligations, CDOs (derivatives). Due to the lock and key relationship between the banks and Moody’s/Standard & Poor were given a Triple A rating giving the illusion of safely. Low interest rates spurred banks, hedge funds and investors to take bigger risks for higher rates of return. Much was borrowed to purchase more with the expectation that returns would exceed interest on the loans; leverage. The housing market tanked and a high rate of default on mortgages ensued, which depleted bank capital. The value of the mortgage-back securities and CDO’s went along with it. Banks used these as collateral to offset short term funding and now they were worthless. Banks weren’t lending to each other or to other parties. Credit-default swaps “(in which the seller agrees to compensate the buyer if a third party defaults on a loan)” emphasized the debt. Entities who sold these swaps could not pay out due to their enormity. Banks had too little capital to absorb the losses. AIG, Lehman Brothers and other behemoths were failing. Companies lost confidence, stopped borrowing in an effort to hold onto cash which halted the economy. The market plunged in commodities, energy, and raw materials due to fear of falling demand. US tax payers picked up the losses to the tune of $700 Billion so large banks would not fail; preventing a similar situation with depositors losing their savings (but paid on the back end with the bail out) as they did in 1929 and the halt of business loans that stimulate the economy http://tinyurl.com... , http://tinyurl.com.... The Bank’s CEO’s got off Scott free mostly due to the inability to prove criminal intent, so filing specific charges was difficult. Furthermore what the banks did was reckless and irresponsible not illegal due to deregulation http://tinyurl.com.... ReinstateGlass-Steagall Act What reinstatement would accomplish: Reduce risk of losses associated with securities in Commercial Banking. Commercial Banks would be less likely to lose due to securities volatility. It would facilitate depositor confidence in the banking system preventing “runs” in an economic down turn. Although FDIC guarantees deposits to an extent, but as with CDO’s in 2008, if a string of mixed banking conglomerates should fail in the future the FDIC could also fall short. Since the repeal of GSA banks have gotten too big to fail: “The nation’s six largest banks issue more than two-thirds of all credit cards and more than a third of all mortgages.” http://tinyurl.com.... These giants have 5% equity and 95% financed with debt. Their dominance and shear size in mixed banking creates monopolies where competition can’t flourish. Stake in transactions: Beyond Commercial Banks services, savings deposits, loans and other basics, a mix with investment services promotes banks to encourage high risk activaties upon the typical client who is unknowledgeable of the complexities of the markets. Traditional commercial banks are more customer focused and risk averse while investment entities are high risk takers for quick rewards; greed for the fast buck always supersedes. Separation offers greater oversight: Separation of commercial andinvestment banks created simplification of oversight. “Commercial banks by minimizing risk and monitoring the soundness of their lending standards. “The aim of the Securities and Exchange Commission, meanwhile, was not so much to safeguard the survival of investment banks, but rather to make sure that they did not defraud investors.”http://tinyurl.com.... Reinstating ReinstateGlass-Steagall banks could no longer self-regulate. Commercial banks who offer a safely net (FDIC) will be restricted on how much risk can be taken. Clout: Banks have become so large their ability to influence Washington undermines the democratic process. $350 Million was spent to repeal GSA. Last year over $29 Million was spent in lobbying to negating more restrictive banking regulations http://tinyurl.com.... Big banks have members sitting on the boards of the Federal Reserve, conflict of interest. When regulations and regulators get too tight, the budget for the Banking Regulatory Agency gets cut due to their influence, weakening oversight http://tinyurl.com.... Politicians are weak for the campaigns funds this industry offers, lessening their will to push for regulations or increased oversight. Due to the higher return in securities and mutual funds, financial advisors were steering IRA and 401(k) managers to contain a greater array of these products. When the market went bust, the bailout merely kept affected banking institutions afloat giving them capital against their debts; they didn’t institute loans to stimulate the economy which was the aim. But this did nothing to alleviate losses felt by everyday American retirement accounts. So we lost on both sides, in retirement accounts and bail-out. The lack of regulation that the GSA provided, regulators failed to provide oversight. The complexity of credit based products and risks taken by mixed banking conglomerates placed results of their reckless behavior squarely on US citizens. Today Although the 2010 Frank-Dodd Act, and the Financial Stability Oversight Council (FSOC) that was created placed more over-sight and regulation, being slowly being phased in over the course of several years, doesn’t resolve the mixed services banking issue http://tinyurl.com.... As the bill went through Congress many of its rules failed to pass or were watered down. To exacerbate the issue Frank-Dodd is proving to fail before it is fully enacted. Congress has failed to properly fund the FSOC; no surprise there. Loopholes allow entities such as JPMorgan Chase to hedge their debts against FDIC protected deposits. Large banks are now even bigger. The size of the FDA rulebook is 8,843 pages vs the GSA's 37, making the sorting out process on how to regulate a daunting task to understand, never mind how to apply the rules http://tinyurl.com.... Credit-rating agencies still have a lock and key relationship skewing how risky products are rated. As of 2012, Bank of America, Citibank, and JPMorgan Chase are the 3 largest banks worldwide. Together with Wells Fargo they fall within the 6th largest assets of the world and amount to 97 percent of the US’s GDP http://tinyurl.com.... Even bigger too big to fail and can possibly affect the global economy if one falters creating another cascading effect. The Glass-Steagall Act should be reinstated.