The Glass-Steagall Myth Revisited

The so-called repeal of the Glass-Steagall Act of 1933 in 1999 is sometimes blamed for the financial crisis. Glass-Steagall was not in fact repealed. Only the provision prohibiting a commercial bank and an investment bank from being controlled by the same holding company was repealed.

Thanks to Robert Wenzel for pointing out this article from (of all places) the Washington Post, which points out the weaknesses in the argument:

Facts such as that Bear Stearns, Lehman Brothers and Merrill Lynch — three institutions at the heart of the crisis — were pure investment banks that had never crossed the old line into commercial banking. The same goes for Goldman Sachs, another favorite villain of the left.

The infamous AIG? An insurance firm. New Century Financial? A real estate investment trust. No Glass-Steagall there.

Two of the biggest banks that went under, Wachovia and Washington Mutual, got into trouble the old-fashioned way – largely by making risky loans to homeowners. Bank of America nearly met the same fate, not because it had bought an investment bank but because it had bought Countrywide Financial, a vanilla-variety mortgage lender.

Meanwhile, J.P. Morgan and Wells Fargo — two large banks with big investment banking arms — resisted taking government capital and arguably could have weathered the crisis without it.

Read “Let’s Shatter the Myth on Glass-Steagall.”

Mike

Sigh….

Looking at some of the comments at the Washington Post it’s the same old tired junk. It all comes down to just one thing: “I’ll hear only what I want to hear”. Debating these people is an exercise in futility.

Anyway the section you posted here Tom is certainly something that should be highlighted.

Really good article though. Thanks for posting it.
dennis

Left-statists are just as ridiculous and disconnected from reality as young earth creationists.
MyFirstNameIsPaul

In last week’s episode of The Newsroom, a new HBO series about a fictitious ‘conservative’ cable news channel, the character developed for us to believe is the ultimate expert on all things economic teaches her boss about the history of economics. In her lesson, she makes sure to cover that Glass-Steagall was what allowed the enormous prosperity of the 20th century, and the repeal of it caused the crisis we are in today.

This misconception/deception runs wide and deep.
http://www.TomWoods.com Tom Woods

I wonder what would account for Europe’s prosperity, since the Europeans did not adopt anything like Glass-Steagall.
DarthJ

I believe in a young earth (as any traditional Catholic should) and am a big fan of Dr. Woods. Do not compare us with liberals.
Anonymous

Geophysics mandate that the radio active isotopes of heavy metals in the core of the earth is directly proportional in magnetism in terms of flux upon the earth’s Van Allen radiation belt. The energy decay rates in terms of thousands of years, not millions of years, are such that the earth was tropically warmer going back 10,000 years. 100,000 years puts climate to be scarcely habitable, and millions of years as not possible to support life on earth. To top it off, the calculus formula for carbon dating has an inverted constant in its base. Statistically when such a formula is compounded into infinity, the statistical variance washes out the formula to be quickly inaccurate going back 10,000 years. It is freshman year math, yet doctored scientists and scholars are so willing to look the other way to support their theories. To top it off, the carbon dating formula presumes that the atmospheric levels of radio isotope carbon-14, an unstable element, to have been a constant level of saturation the same yesterday, last year, thousands of years ago, and millions of years ago. Geo-atmospheric forces say no.