Gerald Celente of Trends Research Institute is a very interesting man. Check out this video if you are unfamiliar with him: http://www.youtube.com/watch?v=aaSKJ75EMoc
I agree quite a lot with Celente’s trend forecasting. However, Celente, as do some others I have heard, place a substantial amount of blame for our economic decay upon the repeal of the Glass-Steagall act. He also surely places blame upon the Fed’s central planning of interest rates as well. So he seems partially Austrian yet he also blames deregulation.
What are your thoughts on the Glass Steagall Act and its repeal?
So they repealed the glass steagal act in the 90’s. This permitted commercial banks to take on risky investments with your money. So banks did.
If there was no Federal Reserve, lender of last resort to the banks, and no FDIC to bailout depositors in the event that banks lost depositor’s money, would banks still had taken on such risks? Without such bailout parachutes depositors would care about the risk level their banks were taking on. Also, bankers would fear the possibility of bank run and the bank going bankrupt. They’d loose their jobs and their bank. If my bank were making loans I felt were not prudent I’d take out all my money and put it in a safe bank. The risky banks would loose business, become more destabilized and go bankrupt.
While I’m sure the Glass-Steagall may have held back banks from risk taking, I think the problem was the other bailout safety nets provided by gov’t for these banks in the event they run into trouble. Dropping the act and the creation of things like the Community Reinvestment Act to encourage such institutions to make risky loans - with the promise of Freddie/Fannie and other bailouts - was the problem.
The problem is government interference in the economy. Regulation is just a way of saying that gov’t is overseeing the interference they’re making to ensure it will have a net benefit, not detriment. They don’t anticipate the unintended consequences of their interference, that regulation can’t prevent.
I agree with bearing01. I add that the repel of the Glass Steagall Act thereby gave more power to the Federal State. For the Federal State intervening in bailouts was a precedence set in the 1970’s and only increased since then, this Act was a firewall into how far the Federal State would need to intervene. Now when the Act was first initiated it wasn’t to keep the Federal State from becoming larger and more powerful in affairs throughout the country. It was to keep these Wall Street Firms out, but as the Federal State began to work through these Wall Street firms this Act thereby kept also the Federal State out. Since that Act was removed, then those firms that get privy to Federal State bailouts were able to sink their teeth deeper into the wider economy and then fail knowing the Federal State would just bail them out. Yet this time around when they fail they cause large federal wide ripples in the economy. States originally and even local governments were supposed to be firewalls too. If a local or state, such as New York, enacted some bad policies well at least the bad ripple would be mainly contained in New York or a small town. But as the Federal Government increased it’s power through these large Wall Street firms the removal of Glass Steagall Act unintentionally became by original enactment also a removed barrier that stood in the way of Federal State intrusions. The Federal State with its removal of this Act was able to make even larger intrusions, interventions, more regulations, and power grabs in many sectors of the economy across the country. So I’m all for deregulation, but a deregulation that just increases the power of the State (at any level) is not really ridding regulation. For as this Act fell numerous regulations were enacted in its place. So it wasn’t really a removal, more an update that increased the Federal powers and made the regulations work in their favor. For now the Federal State was and is able to arise at the local levels in what could be considered banks that were more free market inclined. The Federal State now has an excuse and a clear path to coerce these individual banks more directly for they can show a direct link between “if” these Wall Street firms fail, then these individual banks will also be harmed. Though a good argument against such a Federal excuse can be made. The Federal State is merely just using the same old power grab that any Empire inclined government uses. They are going in, taking holdings, and giving directives with the most fashionable slogan the Federal State likes to voice these days. Recent Federal State slogans that have no rational arguments or evidence to support their excuses for more power and control: “To big to fail” or “It’s a National Security Issue” or “We Will Save You”
The repeal of Glass-Steagall had very little to do with the current mortgage mess. There is nothing in the law saying insurance and banking remaining separate would stop an insurance company underwritten by an investment bank from selling insurance contracts (Credit Default Swaps) on loans and the performance of other banks.
The real culprits are first the central banks as they determine the interest rates. The lower they make the rates, the more aggressive banks must be in loaning money to make a profit. The other group is the FDIC or deposit insurance. This lets banks make risky loans as their depositors are covered by the FDIC.
I almost forgot. During the Depression, banks that were parts of insurance companies failed much more infrequently than banks that were not part of larger diversified financial institutions. WHY? Because the diversified institutions could use the profits from other businesses to cover their depositors. The Glass Steagall Act in my opionion was like the current Fed/Government refusing to take back TARP money. The government was/is in a power grab.
number one, the Glass Steagall Act was never repealed per se. Sections of the act, that created firewalls in investment banking were modified, but the GSA was not explicitly repealed.
number two. the practice of commercial/investment banking coordination has been going on since the 70’s ASAIK, regulators for 20 years prior to Gramm-Leach had already been ignoring Glass Steagall. So its not like, there was a flip of the switch, and all of a sudden bankers and investors started meeting in smoky rooms.
number three. The collapse of the housing bubble, and the subsequent zombification of banks was a result of depreciating housing values, a recession, and various other factors, which has lead to foreclosures and defaults. Not a result of deregulation.
lastly. There was also a housing bubble in Europe, did they have Glass Steagall repealed too?
oh and Gerald Celente is an idiot. in The Obama Deception he claimed Lincoln was assissinated because he opposed central banking.
Gerald Celente can yap all he wants about what he thinks might happen in the future. But he should realy shut up about anything that happened in the past