Two questions about the Glass-Steagall Act

Economics Economics Questions
1

  1. What was the reason behind legislating that commercial & investment banks were to remain separate?

  2. Considering the way that the banks are currently structured, is it fiscally practical to have commercial & investment banks remain separate? Why or why not?

2

  1. The act was not to separate commercial and investment banks but to separate insurance and commercial banks. See the commercial banks were being beaten at their own game by insurance companies that were much more diverse. So fewer banks owned by insurance companies failed compared to companies only in commercial banking.

  2. No. Banks like other businesses should have complete freedom to merge and buy and get merged and get bought if this is in the interests of the owners. In a real free market there would not be a Federal Reserve or FDIC so banks would have to complete by expanding their services and by providing new services as they would not be able to rest on having low reserves through the guarantees of the Fed and FDIC.

Even in this over regulated bailed out mess, more freedom is probably better than less, and more over I do not see insurance companies in the same dire straights as banks.

Please do not miss the core issue in this whole mess. That is the Federal Government bailed out commercial banks that it did insure, Fannie and Freddy that it really did not have to insure, investment banks that should have gotten zero and whose executives should be living with the threat of litigation from account holders, and insurance companies who backed up best by the bankers. The whole system is insolvent no matter what the government pumps into it and all the government is doing all the wrong things by putting more and more financial service providers under its bailout umbrella.

demosthenes 3