The Savings and Loan Crisis Demonstrates the Importance of Glass-Steagall ( Bill Black )

[Jefferson23]

When remembering recently passed away Charles Keating,a key architect of the S&L Crisis, we are reminded of the importance of the Glass- Steagall Act of 1933 - April 21, 14

snip* Bio

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007.

snip*Thanks so much for joining again, Bill.

BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.

NOOR: So, Bill, what do you have for us this week?

BLACK: Well, I did a column recently, prompted, of course, by the death of Charles Keating, who was the most infamous frauds, running Lincolns Savings and Loan, in which I talked about the ten lessons we should learn. And then I thought about it some--or realized I'd left out one of the really important lessons, and that was the importance of Glass-Steagall.

So Glass-Steagall is a law that we passed in the Great Depression in 1933, in conjunction with creating federal deposit insurance, that said, look, we're giving this federal subsidy to the banking operations. It doesn't make any sense to create unfair competition, where the bank could own a bakery store, for example, and compete against another bakery that didn't have that federal subsidy, plus those kinds of investments are riskier. And there's a built-in conflict of interest. If you're lending to accompany and it gets and trouble, you may be tempted to buy stock in that company to try and keep it from failing and vice versa. And for all these reasons, they separated commerce and banking and said investment banks can own equity interest--in other words, they could own stock or they could own entirely a piece of property or a spa or anything they want--but they don't get federal deposit insurance. Commercial banks can't do those things. And that worked brilliantly for 50-plus years.

But one of the proofs of that was the savings and loan debacle, because savings and loans were not subject to the same Glass-Steagall limitations. They could do whatever their status said they could do. And California famously said, you can do as many direct investments as you want. And the direct investment was where you'd have that ownership interest. So you could own real estate, you could own, you know, Wendy's franchises, you could own windmill farms and anything that you wanted. And that ended disastrously. And one of the leading practitioners of that was Charles Keating. And it ended badly, and proving all of the reasons why Congress was smart enough to pass Glass-Steagall in the first place.



in full with video/transcript: http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=11747&updaterx=2014-04-21+14%3A22%3A21

[Gothmog]

1. Dodd Frank has some provisions that address these issues

The LaRouchies are pushing for the reinstatement of Glass Steagall. Dodd Frank has some provisions that help address many of the problems that occur in 2008. In emergencies, the government can break up large financial companies if this is necessary and all such entities have to have living wills that detail how these entities can be liquidated.