Bring Back the Glass-Steagall Act and Break Up the Banks

It is now apparent the governments of the western world at least are fueling the massive speculation going on in commodities, and emerging markets. Much of the speculation is by banks restocked with money from tax-payers and their Central Banks.

They have rebuilt the banks’ cash using tax-payers money and have allowed them to use that to speculate in the stock markets around the world.

The Central Banks have supported this by printing money and working with government to secure failing and possibly fraudulent banking businesses so they can once again prosper at your expense. The Great Depression and Commercial Bank Failures

Allowing commercial banks to speculate is just plain nuts in my book. Banks are there to make loans to business not to bet on the stock market with their own money and with your money through your retirement accounts which many of the banks control.

This was one reason for the Great Depression.

“At the time, “improper banking activity”, or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors’ money.”

I’ve been on a mission to try to understand how we got to this point where we cannot trust anyone in the financial markets to protect our nest egg. That goes even less for the government.

The one thing that really stopped the rot occurring for many years was the Glass-Steagall Act.

“The Glass-Steagall Act has remained one of the pillars of banking law since its passage in 1933 by erecting a wall between commercial banking and investment banking. In effect, the law keeps banks from doing business on Wall Street, and vice versa. In actuality, there are two Glass Steagall measures.”

Why was it necessary,

“The Glass-Steagall Act was enacted to remedy the speculative abuses that infected commercial banking prior to the collapse of the stock market and the financial panic of 1929-1933. Many banks, especially national banks, not only invested heavily in speculative securities but entered the business of investment banking in the traditional sense of the term by buying original issues for public resale. Apart from the special problems confined to affiliation three well-defined evils were found to flow from the combination of investment and commercial banking.”

But in 1999 the Glass-Steagall Act was repealed,

“If you’re looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.
The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation.”

In Australia we need a similar Act to be passed and we need the Banks to be broken up into Commercial and Investment banks. The Commercial banks should not be in the brokerage business, the wealth management business or trading in their own right. Quite frankly they cannot be trusted.

Here is a chronology showing the long demise of the Glass-Steagall Act. It didn’t happen overnight but gradually over years. It died primarily because millions of dollars were paid in bribes to politicians in the form of lobbying and campaign funds.

“After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.”

The Glass-Steagall Act was a good regulation in particular because it protected small investors from banks using their own money and their depositors money to speculate which could result in systemic bank failure. Well, guess what that’s exactly what happened.

“In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors.”

If something is not done to re-instate a similar act to the Glass-Steagall Act around the world then we are probably doomed to repeat the financial crisis and probably very soon the way things are going.

You cannot trust the banking system as it now stands and unless governments re-enact an updated Glass-Steagall Act your nest egg is likely to take yet another hit.

I believe repealing this act is the single biggest contributor to the demise of your nest egg.

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