Recent events have seen the unwinding of the Glass Siegel Act and the reemergence of a pre Glass Siegel banking structure where Investment and Commercial Banking are once again under one roof. I don’t understand the argument that deregulation and the move away from Glass Siegel restrictions was the cause of the current financial crisis. If anything the clinging to the obsolete notion of Glass Siegel premeditated the demise of many of today’s financial institutions. Glass Siegel only worked because investment banks were run primarily as partnerships and the risk to your own capital put constraints on leverage and speculation. The demise of the old partnership style investment bank lead to spending of the publics money has led too more leverage and more risk taken. After all Europe had no Glass Siegel and their banks ,and investment houses have faired much better than their American counter parts in the current environment. The joint structure of investment banking and commercial banking together makes capital far cheaper than the highly leveraged investment banking model, but I suspect less profitable. It’s rather strange to be criticizing the demise of Glass Siegel while the current solutions all involve undoing all the separations between commercial and investment banking.
This cleansing process signals the end of the Bear Market that has engulfed US Equity markets since March of 2000. Firms that are not accountable and transparent will be put down. While the free market seems to be taking the hit for poor judgment and a lack of oversight. This should come as no surprise given the very people looking to expand government power by trying to clean up this mess are the very people that created this mess to begin with. Let’s all face it, its not like all the rules were not already on the books such as Sarbanes Oxley but apparently large political donors were granted exemptions.
No comments:
Post a Comment