Source: Convearth

 

Hat tip Bartcop

 

One correction: What’s labelled trash should really be marked iBanks.

There is nothing inherently wrong with speculation, derivatives, securitization, etc. I just don’t want to be on the hook for these as a taxpayer.

Category: Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “Time to Restore Glass Steagall . . .”

  1. ZedLoch says:

    Nice!

  2. MayorQuimby says:

    There is everything wrong with *unbacked* derivatives and securitization. Speculation is fine as you mentioned.

  3. carleric says:

    Hey Jamie tell me again why banks need to be engaged in uncontrolled speculative activities.

  4. AHodge says:

    nice
    real narrow banking, but how about
    mortgages? OUT
    careful with pensions, why leverage needed?
    all business loans held on the books? IN
    running the payment system? IN
    glass steagall in its old form was outdated and half gutted before the final wipout?

    as ive been saying for over a year real narrow banking will need administratively to be defined by what it is.
    then we can work on the list of whats in and worthy of guarantee/discount window aid and deposit insurance

  5. S Brennan says:

    Barry,

    Isn’t there a bill [HR1489] already floating in congress?

  6. cognos says:

    Yep, exactly the right direction.

    Minus the silly bloated language like “thrown out”.

    Its simply that liquidity providing through TRADING demands an enormous amount of SPECULATION. Its inherent in making $1bln markets in illiquid instruments. No judgements needed. This is the bread-n-butter business of an investment bank like Goldman Sachs. Its serves clients well (there are 100s of $100bln+ financial pools and dozens of close to $1T pools. Seriously!) and is a tough, but rewarding business.

    But yep – make this separate from deposits.

  7. cpd says:

    You make the exact right point. There is a lot of noise around the JPM loss in the media. But the defenders of the “small” $2bn loss forget to point out one thing – the banks get on-going support from the Fed and Treasury, especially money at 0%. They are welcome to speculate all they want but it should be done in a separate legal entity that gets it’s capital and funding from private investors. As long as the banks, particularly the TBTF get taxpayer support, they should be subject to any and every investigation/regulation/enforcement that the public wants. In other words – get off the taxpayer backs already.

  8. GZR says:

    A necessary step in this process is to somehow separate the label “banks” into commercial banks (main street) and investment banks in terms the public undestands. Support for commercial banks, properly regulated and insured is strong. Investment banks cruising under the radar as “banks” is not well understood and would not be supported if the public truly knew the difference. The fact that GS and MS have access to public money is a travesty. If the investment banks want to gamble their own money, that should be their business with the proviso that they should not be allowed to be a significant systemic risk. Anti-trust laws should be enforced. Even with the five major I-banks that existed before 2008, the sector was too concentrated. Now, with two plus maybe three wannabes, it is even worse.

  9. cbjohn1 says:

    Ah so simple and yet so complicated. In order to re-implement simple, proven regulation like Glass-Steagall we’d have to get rid of the overly-complex, questionably-effective Dodd-Frank. The loopholes imbedded in Dodd-Frank represent hundreds of millions in lobbyist dollars and billions in new regulatory largess.

    This has no shot of happening but if only …

  10. ashpelham2 says:

    The fact that Glass Steagall was even repealed in the first place points to the asleep-at-the-wheel mentality that defined the late 1990′s and 2000′s. As long as the markets were going up and everyone could afford the American dream, what was the harm? Now we know. And as usual, putting Glass Steagall back in place will be a reactionary event. Prevention is the best cure.

  11. rd says:

    The one problem with the “iBanks” is that the first hint of major trouble and Treasury and the Fed are turning them into “bank holding companies” so they get to feed at the government trough.

    The new Glass-Steagal should require a mandatory 1-year waiting period for conversion to a “bank holding company”. If it fails in the meantime, then it was just not meant to be a player in the game.

  12. DeDude says:

    Yes even on the right there is nobody supporting the idea that the big iBanks should get free money from the Fed and support from the FDIC insurance to do their billion dollar gambles. It says something about our system that something that not a single politician has dared to try defending in public is nonetheless continuing without even a debate in corporate media.

  13. mathdock says:

    Amazing that even the CNBC morning folks opined positively on this matter. Probably means it won’t happen.

  14. louis says:

    Can we get LBJ on board?

  15. NoKidding says:

    First infographic I can’t find an obvious flaw on.

    Except that by the time the sausage is packed, all the losing bets from that trash can will be monitized by the FRB, and all the winning bets will belong to Goldman, Morgan and BAC. Not much to do about that though. Market seems to think its baked into yesterday’s pies.

  16. BusSchDean says:

    Nice…now where is the link to click that automatically sends this to our Senator and Congressman?

  17. VennData says:

    Banks should be able to loan to whom they choose, just keep their leverage low. That is all you need.

  18. Frilton Miedman says:

    Don’t let high unemployment, foreclosures, underwater mortgages, fraud, squalor, a disappearing middle class and astronomical consumer debt fool you, Glass-Steagall has done miracles for banking progress to promote economic growth & wealth creation….for about 400 people.

  19. ConscienceofaConservative says:

    There’s no economic justification for extending tax payer risk to what amounts to pure speculation. We’ve also seen that the so called “chinese wall” between the commercial side and the investment side of the bank is filled with holes and only encourages the bank to partake in mischief. And as we now see with JP Morgan once again, the mega sized banks are too big to be managed.

  20. willid3 says:

    i read some where that the 2 billion dollar lost? it was done using savings deposits. and some where else i remember they mentioned the reason we see this being done over seas is because its illegal in the US. but if you look at your contract with the banks. they are allowed to export your money this way. and if the money is lost. its not covered by FDIC

  21. 10x25mm says:

    Barry -

    How do you prevent the City of London endrun which was one of the reasons that Glass-Steagall was repealed? Unless this is adopted internationally, it won’t be effective because the prop trading will just be performed by foreign subsidiaries.

    The real problem is that the U.S and Europe have too many banks for the amount of normal banking activity which can be supported by the underlying economy. The herd has to be thinned out by bankruptcy, something that the bailouts have prevented.

  22. Futuredome says:

    The Volcker Rule is the new Glass Steagall. Now they just have to make it just as good.

  23. susanj says:

    Where are Clinton, Greenspan and Summers on this? They’re the ones who helped tear it down.

  24. AHodge says:

    i agree w the 10x25mm second para
    as for the first who cares if they flee to the home of the “freeier”
    as to any capture of expensive jobs and bonuses domestically?
    who ought to give a hoot?

    they dont pay shit for taxes
    domestic multipler for their spending is low
    and when the shit hits the fan IBGYBG and THEY’ LL be gone!!
    and once again you be holding the bag?
    unless you get uncle sugar out and some foreign bondholders to take the hit
    lets let them operate here only if they get foreign bond and other funding to eat the losses
    the US has been a serial soft defaulter for decades, lets keep up the good work and make more foreign creditor friends.

  25. cognos says:

    You guys are more than a little silly… “support from the Fed and FDIC”.

    So banks pay FDIC (and I’m pretty sure its way overfunded now). Course, those costs are passed on to depositors.

    And then the Fed, in regulating interest rates… supports (or hinders) us ALL. We all borrow money in various forms at different times in our lives. These same “rates” and support are available to ALL COMPANIES. Real-estate, oil companies, restaurants, etc, etc. All clients of the banks, etc.

    Further… I bet BANKERs (like lawyers, and doctors, etc) pay A MOTHER LOAD in Taxes. Hmm? Don’t you think?

    Might be some minor improvements we could make to the tax code to make sure some ultra-rich pay a fair 25-33%.

    But otherwise… Its aint firefights, police, teacher, and garbage collectors… making the world go round (They all MAKE their money from the GOVT. Somebody has to pay the taxes!).

  26. Tioga says:

    Bankers are risk-averse, and speculators are not. Consequently, banks should not be run by speculators, and bankers should not run gambling companies, like Wall Street Firms, Harrahs, etc. It is not that one can’t run the other, it is because each is genetically-determined to take risks or not take risks, not both. Risk averse people like to run and work at banks, and those who are not, love taking chances. It is as simple as that, and that is why the rules should prevent misallocation of people and other resources. Kiss Dimon good bye. He is a risk taker, obviously, and should go, because Dimon’s CV wrongly identifies him as risk averse, when he nothing more than a bullshitter like the rest of Wall Streeters (who tell people where the market is going to go, when they have no idea).

  27. philipat says:

    Just one thing to add. IMHO, iBanks should NOT be public companies. If the Banksters want to speculate with their own money and that of investors who willingly and knowingly take on the risk, that;s fine. But it should include unjnowing shareholders or, by default, taxpayers funds.

    If after JPM we can’t get Glass-Steagall re-instated it will simply confirm that the whole system in the US is toyally corrupt and broken. Already the political whores are out there. Yesterday on CNBS, Corker was out there saying that he “Supports change but wants to be sure that there is not a knee-jerk reaction which makes things worse”. Translation: my Corporate Masters want this stopped. Why do the talking heads never ask these clowns where their capmaign funds come from?

  28. victor says:

    So Dodd-Frank with the Volker rule is not going to suffice? With all those pages? Investment banks? why “banks”? why not call them what they are: Casinos.

  29. Iamthe50percent says:

    The banking system is a joke. Jamie Dimon on the board of the New York Fed? Jamie Dimon???
    It’s like giving Al Capone a government job charged with enforcing the Volstead Act.

  30. obsvr-1 says:

    If the Clinton-ista’s would NOT have derailed Brooksley Born in the mid-90′s (that would be Greenspan, Summers, Rubin and ‘lil Geithner hanging on their Cloak-tails) then there would have been more openness and exchange traded derivatives transactions (Not the private OTC mess with cloaking devices fully engaged).

    And everyone thinks the Clintons are soooo wonderful … barf !!

  31. MikeDonnelly says:

    It’s almost like those old guys in the ’30s knew what they were doing.