I'm in a discussion on another board with a typical socialist type. She makes the claim that Glass Stegall was the root cause of the downturn. She also says it allowed bankers to take "1/3 of our money out of circulation". What does that even mean? I've never seen that argument before.
Hva you asked her?
I got it - I think she means that the money the Fed is giving them is merely being locked up in vaults and not loaned out. Iirc, this is one of the first times in history it's happening to such an extent.
There is a growing consensus that the alleged "repeal" of the Glass–Steagall Act had nothing to do with the 2007–09 financial crisis, because the original collapse was concentrated on investment banks (and the "shadow banking" system). And, bankers didn't "take" any money out of circulation in a 'voluntary' sense; rather, a collapse of debt instruments leads to a collapse in the volume of fiduciary media. This collapse in debt instruments is also probably why bank lending volume is still relatively low, and why banks hold huge reserves of money (moreso, perhaps, than the fact that the Fed pays [although, I think less now than before] banks to sit on these reserves).
‘Repeal’ of Glass-Steagall Irrelevant to Financial Crisis (republished at LRC here)
“Deregulation Caused the Financial Crisis”
The Glass-Steagall Myth Revisited
And I talked about it here:
The unregulated market caused the recession (and the post above it gives an actual explanation of what happened).
There's also these:
Article/Book on origins of Glass-Steagall Act?
Gerald Celente and the Glass-Steagall Act
What are the good and bad effects of the Glass Steagall Act and what is its role in the recession?
Two questions about the Glass-Steagall Act
Glass Steagall Act
Question about Glass Steagall and the 2008 Financial Crises
The true purpose of Glass/Steagall
The "Great Moderation" and Glass-Steagall
Awesome lecture
Does anyone else think that the Banks are taking the money from the FED and sitting on it because they are anticipating gigantic losses when the FED tries to sell those assets back to the market? I think that capital is being built for the sole purpose of soaking up losses in the medium term.
There is a growing consensus that the alleged "repeal" of the Glass–Steagall Act had nothing to do with the 2007–09 financial crisis
In the mainstream? Link?
Wheylous,
Here's one recent article published in the New York Times. I had an older piece in mind, I think published in the same newspaper, but I don't have time to search for it right now. There is also a recent blog post that cites a few orthodox economists that you might not expect to be on a list of people who don't think the "repeal" of the Glass-Steagall Act had anything to do with the 2008 crisis.
Thanks!
I also read an article on Yahoo Finance not too long ago making the same point as what Jonathan eluded to. Lehman and Bear Stearns were investement banks only. AIG was of course an insurance company. And of course there is Fannie and Freddie. For the most part, none of the big players that collapsed first were commercial banks at all.
Does no one check out any of the links? They're good, I promise.
Again, Tom Woods h/t's Bob Wenzel for pickup The Washington Post saying so...