Glass-Steagall Act

Finance allah shmoop What is the glass steagall act All

those generous bankers of the twenties and thirties They wanted

to do so much for their clients Loans for shipping

contracts of supplies to europe you know to help clean

things up after the you know big banking deal advice

for when us railroad wanted to buy you know or

pennsylvania or reading big banks and even bigger you know

bankers like that guy were everywhere and somehow they all

looked like this guy Yeah and always good and nice

and clean fun for a white men Until it wasn't

part of what was discovered in the ashes of the

post great depression recovery era was that everything was linked

like interlocking directorates Banks in cahoots with companies seeking to

virtually or directly monopolising industries politicians in the back pockets

of hugely powerful and generally unregulated banks And yeah people

had huge pockets back then You know i think kinga

roots there were no income taxes So like what would

you expect anyway One of the laws that came out

of that era was the separation of commercial banking services

like the people who simply lend debt money Teo large

Corporations mostly and investment banking services like the people who

advise and facilitate mergers acquisitions and other strategic deal making

The belief or hope was that by separating these two

over loving kids in the playground well then the insider

dealing and fair resource allocating and honest well general dealings

of big industry would somehow be more fair or at

least open So the intent of glass steagall was all

about fairness In particular it focused on the separation of

commercial and investment banking So that was that these two

types of banking we're separated and then the financial markets

well after nineteen thirty five everything was smooth sailing right

Yeah not so much Glass steagall came under assault from

many angles the biggest of which was from the big

banks lobbying efforts as they sought to consolidate i by

each other and grow and well one way to do

that would be too again combine commercial and investment banking

services and they're kind of naturally a conflict there right

So the lobby along with fortunate or unfortunate timing worked

And in nineteen ninety eight bill clinton said i did

not have sexual relations with that woman and he also

repealed glass steagall Ironically his exact words on the repeal

were it was no longer appropriate Yeah and he was

referring to the act not the other act with monica

anyway it went away and from ninety eight forward for

a decade thanks merged and got bigger and more powerful

and then they got more aggressive loaned more money under

pressure from shareholders keep growing and delivering such loving returns

And then along came the home mortgage crisis which almost

brought down the western world in two thousand eight ish

A lot of long haired props actually blamed the unwinding

of glass steagall is a root cause for this cataclysmic

fail The phrased too big to fail was bandied about

needlessly really and well guess what the banking system was

not in fact too big to fail It almost did

But don't worry because now with the banking system nicely

regulated we should all be in for a comfy smooth

ride for the foreseeable future Next century or so everything's 00:03:23.58 --> [endTime] gonna be just fine