Comments on: Forget Glass-Steagall repeal. It's the Securities Acts Amendments of 1975 That Really Did Us In

By: The Curious Capitalist - TIME.com » Blog Archive I take it all back: Bengt Holmström says securitization wasn’t the problem, but Glass-Steagall repeal might have been «

Fri, 12 Dec 2008 15:34:44 +0000

[...] Posted by Justin Fox | Comments (0) | Permalink | Trackbacks (0) | Email This I've done a lot of bashing here of those who think the 1999 repeal of the Glass-Steagall Act separating banking from the [...]

By: The Epicurean Dealmaker

The Epicurean Dealmaker — Sat, 04 Oct 2008 22:32:43 +0000

You are right, Justin: May Day was the proximate cause. Wall Street had to figure out a way to pay for the substantial ongoing human and capital investment it made in its sales and trading operations, and proprietary trading was a small step from using firm capital to make markets. Subsequent huge momentum plays in equity and fixed income markets provided the profit making opportunities. http://epicureandealmaker.blogspot.com/2008/09/k-t-boundary.html

By: CorporateParasite

CorporateParasite — Sat, 04 Oct 2008 00:00:42 +0000

I think that the issue about Gramm-Leach-Bliley is that it created regulatory competition that resulted in a race to the bottom, of sorts. The politicians were foolish to think that more institutions would come under the supervision of the Fed, the OCC, etc. Remember that GLB allowed for the idea of functional regulation, which meant that the Fed didn't necessary have oversight over all areas of a bank.

By: funkyfred1933

funkyfred1933 — Fri, 03 Oct 2008 15:44:15 +0000

Your argument considers why the investment banks rely on risky investments for earnings, but not how they were able to use so much leverage, which was a bigger factor in their downfall. How and why the SEC allowed them to leverage themselves to the hilt: http://www.nytimes.com/2008/10/03/business/03sec.html

By: Justin Fox

Justin Fox — Fri, 03 Oct 2008 15:10:38 +0000

He was also the father of the Freedom of Information Act.

By: williambanzai7

williambanzai7 — Fri, 03 Oct 2008 04:12:42 +0000

Congressman Moss was more than a mere consumer rights advocate, he was a champion of a strong independent regulatory system consisting of agencies, such as the SEC. In his day, the SEC was the pride of the regulatory fleet.

I am sure he is rolling in his grave given the dismal performance of this agency of late.

By: Justin Fox

Justin Fox — Fri, 03 Oct 2008 02:28:04 +0000

@True Conservative: Yeah, the OTC derivative thing is something I keep meaning to learn more about and write more about. And news keeps intervening. Sorry.

As for the BEA data, the current account deficit is on line 77. But you've got quarterly numbers there, not annual. Anyway, yeah, I'll try to work on making a pretty chart.

By: True Conservative

True Conservative — Fri, 03 Oct 2008 01:15:17 +0000

Oh, and Justin, on your terrifying Exporting Promises article, would love to see data on that, a pie chart or some such, in a future post.

I assume the data's here:

http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=1&area_id=3

But I don't know how to parse it.

Thanks.

By: Curmudgeon

Curmudgeon — Fri, 03 Oct 2008 01:11:27 +0000

@Sean: You said it better than I ever could.

Interesting point about defending your business model to your stakeholders. Buffett doesn't seem to have to, because he knows what business he's in. Wall Street CEOs think their business is to make money. Ultimately, in and of itself that's not a productive use of capital.

By: True Conservative

True Conservative — Fri, 03 Oct 2008 00:40:05 +0000

Justin, why are you going on about this red herring? No, repealing Glass-Steagall didn't cause this.

In fact, deregulating didn't cause this. (I know, lots of people believe these things.)

*Not* regulating caused this. We needed new regulations for a new financial order. (i.e. capital/leverage requirements for CDO issuers.) We didn't get them.

That, in turn, was caused by thirty years of theological Reaganomicism.

You are the only econoblogger who has given more than a passing mention to Gramm's Commodity Futures Modernization Act. As you know, that was a regulation that made regulation illegal.

In particular, it specifically banned regulation of credit default swaps.