Senator Elizabeth Warren (D) MA to re-attempt Glass Stegall

Quote from PiggyBank:
1) Which is what I was said. I don't see how GS being in place would have prevented the crash, unless you are telling me that these mortgage backed derivatives wouldn't have been created and the RE market wouldn't have gone on it's run.. i don't see how GS would have prevented either.

2) I'm aware, but the fact that deposits were being used for speculation/trade isn't solely what caused the crash, or even the primary reason. The i-banks like Lehman and Bear didn't have depositors, yet they were still heavily leveraged.

3) Agreed.

4) I thought you were but i could have you confused with like, tinfoil, or one of those guys. my apologies IF you aren't a 'fair share' obamanite.

5) edit: how do you figure AIG wouldn't have 'needed' to be bailed out?
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1) IMHO, G-S might not have prevented a crash, but it would have prevented the crash. In my view, crashes are fine, as long as they don't spread to places where they don't belong.

2) I don't like "slippery slope" arguments normally, but, IMO, (and similar to what denner pointed out), once you allow the use of cheap and readily available funding (deposits) to a few large actors, it's almost inevitable that everyone else, including pure i-banks, finds a way to get in on the action. For example, I don't think it's a coincidence that prime money mkt funds (which provided funding to the banking system during the good times) experienced major inflows starting in 1998-99. Moreover, once you allow banks to use deposits, you inevitably create a fertile environment for someone like Fred the Shred or Sandy Weill to come along and start their empire-building. The end result is excessive concentration, no competition, etc etc. There's some really good stuff written on these subjects, if you have cares.

5) IMHO, the only reason AIG was bailed out was to avoid further stress for the rest of the banking system. Stress for the banking system wouldn't have been a problem, IMHO, if it didn't involve deposit-taking institutions.
 
Quote from Arnie:
Name one bank that went under due to their investment banking side imploding.
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You mean name a "universal" bank that went under as a result of their i-bank imploding?
 
Quote from denner:

But think about it for a minute. One of the main reasons WHY those two i-banks were such a problem was because their counter-parties were the TBTF institutions with the depositor's funds at risk. You don't think that was their ultimate bluff?

The "cross-contagion" of even one bad actor with massive leverage that could infect every other institution that has exposure to them...
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Are you saying that they were banking (no pun intended) on being bailed out because they thought the counter-parties to their positions wouldn't be allowed to fail, ahead of time? If so, I personally don't buy that, I think it was a lot more simple, they were killin it, got carried away and ended up stuck way over their heads in positions they couldn't puke. But that's just speculation.

To your second sentence I agree that's what happened, but I'm not sure these things can be prevented, at least not the way our banking system works. Which is a little off topic, but I believe this is the way it works at present, although I'm not sure if it only applies to what would be considered standard lending. Say the reserve requirement is 20%, a bank loans out 80% of it's deposits and they should be maxed right? Well instead those loans count as assets instead of liabilities, and they get to loan out 80% of the loans they haven't even collected on, rinse and repeat. That to me is ridiculous and how traditional commercial banks made so much money to begin with. If we changed that it would certainly help prevent even large banks from being such a risk to the whole system. I don't know this for a fact so someone please correct me if I'm wrong.

And someone please help me understand why people deposit their savings in banks that are taking all kinds of risk for the same int. that they would get at a standard commercial bank(s)?
 
Quote from Martinghoul:

1) IMHO, G-S might not have prevented a crash, but it would have prevented the crash. In my view, crashes are fine, as long as they don't spread to places where they don't belong.

2) I don't like "slippery slope" arguments normally, but, IMO, (and similar to what denner pointed out), once you allow the use of cheap and readily available funding (deposits) to a few large actors, it's almost inevitable that everyone else, including pure i-banks, finds a way to get in on the action. For example, I don't think it's a coincidence that prime money mkt funds (which provided funding to the banking system during the good times) experienced major inflows starting in 1998-99. Moreover, once you allow banks to use deposits, you inevitably create a fertile environment for someone like Fred the Shred or Sandy Weill to come along and start their empire-building. The end result is excessive concentration, no competition, etc etc. There's some really good stuff written on these subjects, if you have cares.

5) IMHO, the only reason AIG was bailed out was to avoid further stress for the rest of the banking system. Stress for the banking system wouldn't have been a problem, IMHO, if it didn't involve deposit-taking institutions.
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1) that's kind of the thing about a real crash, it is going to have an effect on everything, no?

2) i agree that the repeal of GS led to the stifling of competition and the rise of these so called TBTF banks. And that customer deposits probably shouldn't be used for speculation, unless there is something in it for depositors. That's up to depositors however, and if they continue with their shitty deal, why would the banks offer anything more?

3) I don't see how you arrived at this conclusion. BSC went down and there were problems, however the govt found a buyer.. then i believe it was fannie and freddie, who were basically absorbed by the govt, but the real crash happened when Lehman blew up, a pure IB. No actual deposit taking banks did go under, yes due to the bailouts, and since deposits are insured (lol) by the govt then what is the problem? Are you saying the cost of refunding depositors would have been greater than bailing out the banks? I don't have the actual numbers, but i find that hard to believe. imo, the banks were NOT bailed out for the sake of depositors.
 
Quote from PiggyBank:
1) that's kind of the thing about a real crash, it is going to have an effect on everything, no?

2) i agree that the repeal of GS led to the stifling of competition and the rise of these so called TBTF banks. And that customer deposits probably shouldn't be used for speculation, unless there is something in it for depositors. That's up to depositors however, and if they continue with their shitty deal, why would the banks offer anything more?

3) I don't see how you arrived at this conclusion. BSC went down and there were problems, however the govt found a buyer.. then i believe it was fannie and freddie, who were basically absorbed by the govt, but the real crash happened when Lehman blew up, a pure IB. No actual deposit taking banks did go under, yes due to the bailouts, and since deposits are insured (lol) by the govt then what is the problem? Are you saying the cost of refunding depositors would have been greater than bailing out the banks? I don't have the actual numbers, but i find that hard to believe. imo, the banks were NOT bailed out for the sake of depositors.
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1) No, I respectfully disagree. The problems really started once the issues infected the money markets, IMHO. It turned out that there was a LOT of leverage in things that were perceived as "extremely safe". Rest is history. My point here is that the issue with these crises is always a matter of expectation vs realization. If things that are risky are KNOWN to be risky, while things that are "safe" are KNOWN to be safe, crashes can be dealt with. That is the ultimate point of G-S, really, and I think it's the right thing to do.

2) I have no problem with the idea of "buyer beware", like I said before. But, firstly, I am talking about insured deposits only. Secondly, the various loopholes that allow implicit hidden leverage, such as accrual accounting for money-mkt funds, implicit guarantee for Fannie/Freddie, etc, should be eliminated. In order for the depositor to make an informed decision, you need to have transparency, which you currently don't have.

3) By the end of 2008 insured deposits in the US were projected to reach $4.42trn. Between the end of 2008 and mid 2009 FDIC DIF burned through its entire reserve (estimated at $55bn as of end 2008). Obviously, with Citi/BofA looking shaky, it looked like the tip of the iceberg. That was the problem, IMHO.
 
one of the comments said...

now we find out who the congressman really work for.

any congress person who does not vote to separate govt insured deposits from highly leveraged speculation is clearly working for the banks and not the people.

voting for another tbtf bank scandal over financial security.
 
The one thing I had hope for when Obama took office was that we would get some re-regulation. Then he appointed Wall Streeters as his entire cabinet [well, there was Hillary].
 
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