Hi Everyone,

Today marks the 10 year anniversary of the repeal of the Glass-Steagall Act.  President Clinton signed the Gramm-Leach-Bliley Act on November 12, 1999, which repealed the former.  There were actually two Glass-Steagall Acts, but the second one was enacted during the Great Depression in early 1933, and it established the FDIC and even more important the separation of investment banking, commercial banking, insurance and brokerage.

The repeal ten years ago kept the FDIC, but allowed banks and financial institutions to become too ‘big to fail’, by creating these financial monsters that we have now.  One of the first thing that happened was Citibank buying Traveler Insurance.  This was actually arranged prior to the signing, and President Clinton’s Secretary of Treasury Robert Rubin joined Citibank as board member shortly after resigning as Secretary of Treasury four months before the repeal of Glass-Seagall.

I don’t think we can identify one single reason for the current economic crisis, but I believe that repeal paved the way for the current crisis, among other issues like the easy money policy by the Fed, ‘forced’ lending to not credit worthy individuals, and lack of enforcement of regulations that are way too complicated.  Even though I personally don’t favor big intervention of government in private business, I believe it would be good for the health of our financial system to bring back Glass-Steagall.  I believe our financial system would become much more dynamic again, with smaller entities that had to compete and could not rely on government for help, because they would not be perceived as too big to fail.

The breakup of AT&T in the early 80s spurred huge innovation in telecommunication, and I believe doing something similar in the financial industry will cause that industry to go past anything we have seen before.  I believe that is what’s needed for our economy to come back to life.  I know there is some activity in Congress about bringing it back, the alternative is for our government to continue meddle in the financial industry and the financial industry not living up to its potential.  Let’s hope they will do the right thing for a change and do what is best for our country and not for special interest.

Please feel free to comment.

Cheers,

Patrick