The USFG should reinstate the Glass- Steagall Act.

Rebuttals Glass-Steagall was an overreaction to the Great Depression Your cit #1 conducted an analysis between commercial and investment entities and whether or not there was a duping of the naive investors with regard to purchasing bad securities in order to offset bank losses. The study self admits to a multitude of data gaps. First, in the period studied 1921-29, reliable bond performance data was seriously lacking. Instead they used the age of the bond to tabulate against underwriting actives. It used the timing of bond defaults not totals in making comparisons between commercial and investment banks. This at first glance may seem rational, but later admits data on payments to bond holders when a company defaults were unknown. In reassessing their results for hypothesis for robustness they used a ratio test to correlate data between commercial and investment banks, resulting in a 1% confidence in accuracy, not good. Furthermore when looking at debt, 25% of the data was missing in predicting these bond defaults, so the timing calculation was used to extrapolate by this percentage. Nowhere in the study do they explain how this calculation was done, or account for the rate of failures or bond payments. With all this self admitted lack of data groups, they still jump to the conclusion that naïve investors were not duped into buying bad securities by commercial banks. To make clearer on why their process and data (or lack of) does not hold up under scrutiny; solve this problem: Clyde Investments has 100 apples, 25 are hidden in a box. Paul Commercial has the same. (Using the study’s percentage rates of failures, 77% investment, 53% commercial over 8 yrs studied.) 58 of the investment bank’s 75 seen apples and 40 of the commercial bank’s seen apples rot. In the end, out of the total 100 apples each bank held, provide the number of total apples rotted? How many apples rotted in each unseen box? Using the flawed timing calculation the study only indicates that apples rotted at a faster rate in investment banks; commercial banks were slower in issuing securities to offset debt. And there are two other underlying factors that further discredits the study’s conclusion. Total bond defaults between the two types of banks over the 8 years and percentage of capital held by each to offset losses; at the time there were no capital minimum regulations. With the missing data sets their conclusion that the naive investor was not duped falls flat. Furthermore, in the 1933 during hearings under congressional investigation for reasons of the 1929 crash, lead by Ferdinand Pecora, prosecutor, evidence was uncovered that fraud with use of customer deposits and a promotion of securities to the public was occurring. Executive Charles Mitchell, of National City Bank, the largest commercial bank in the US, admitted to taking on failed loans and packaging them as securities then selling them to unwitting investors. Short sales, stock manipulation and fraud to the disadvantage of small investors, along with a litany of additional abuses were revealed. Admissions from the mouths of banker’s they had duped investors http://tinyurl.com.... GSA was not an overreaction. Glass-Steagall would have also prevented acts that helped mitigate the financial crisis of 2008 The Merrill Lynch purchase by Bank of America hardly can be said to be beneficial or mitigating. With $30 billion worth of CDOs on Merrill Lynch’s balance sheets they were heading for a fall. With Merrill Lynch’s liabilities now on the ledgers of Bank of America it too would have crashed if it weren’t for the $20 billion bailout by our government. This was on top of the already doled out $25 billion from TARP. Our tax dollars pick up the bad investment tab to keep BofA from failing. On top of this, the US bought 90% of BofA’s debt that it inherited from the purchase. Risky investment related activities are prohibited under FDIC regulations, but with a wave of a wand most of these liabilities under BofA were forgiven. Glass-Steagall would have prevented this merger and subsequent bail out. Merrill Lynch should have been allowed to fail or be bought by another investment entity http://tinyurl.com.... Bear Stearns and JP Morgan were both investment banks, we agree a moot point as it pertains to Glass-Steagall http://tinyurl.com... Your cit #2 Wikipedia, states the concern was “ investors were afraid that the contagion could spread to the other surviving investment banks.” not in the markets as a whole nor makes a supposition that failures would be inclusive of commercial banks involved in investment activities; you have extrapolated with false assumptions. What the repeal of Glass-Steagll enabled is series of bank mergers and acquisitions that allowed large banks to grow into mixed services megabanks, taking more of the market share and posing risk to the financial system. These banks took too much risk and were caught with their pants down when their risk failed. Nobel Laureate economist Joseph Stiglitz stated “Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively…It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money — people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking.” http://tinyurl.com.... In relation toCit 3# “A New Capital Regulation for Large Financial Institutions” and reference to Hart and Zingales:Regulatory Capital Requirements were/are already on the books and did not prevent the 2008 financial meltdown http://tinyurl.com.... In fact, RCRs in commercial banks were circumvented which facilitated the 2008 crash; more on this later. There’s no explanation by you on how this proposal of larger minimums of equity and how this proposal hinders circumvention of RCRs is more beneficial over reinstating Glass-Steagall. Glass Steagall's demise did not cause the 2008 crisis Though some believe that investment houses such as Bear Sterns and Lehman Brothers were the underpinning for the cascade of events of the financial crisis, this is not true. This view fails to see the bigger picture. Investment banks were purchasing mortgages and obtaining lines of credit from large commercial banks. Commercial banks went from giving out prime mortgages to sub-prime due to overzealous optimism of the rising housing market and high demand for mortgage backed securities (MBS) from investment firms; a supply chain of feeding the wolves. In 2004 the Fed raised short term interest rates which slowed the housing market slightly, but in the same year US Securities and Exchange Commission permitted investment banks to issue more debt; the derived profits were used to purchase more MBSs, further fueling the feeding frenzy; the Fed rate did nothing to curb margin purchases. The demand induced predatory mortgage lending practices with adjustable rate mortgages within the sub-prime sector. Without the ill rated MBS products, investment banks would have not leveraged themselves. It was a vicious circle, (review video R2.) Free from With Glass-Steagll regulations (FDIC insured deposits bared from use to underwrite buy and sell securities, as well as selling these securities to their own customers to back debt) commercial banks moved their liabilities off their balance sheets into the shadow banking sector of money market mutual funds (derivatives) which had little to no regulatory oversight. This allowed commercial banks to bypass regulations regarding minimum capital ratios, increasing their leverage. When the crash occurred they lost. All these activities done by commercial entities would have been prohibited under GSA http://tinyurl.com..., http://tinyurl.com... , http://tinyurl.com..., http://tinyurl.com..., http://tinyurl.com..., http://tinyurl.com...