This arrticle was in the New York Times this morning.
quoted Senator Elizabeth Warren on Thursday introduced an aggressive piece of legislation that intends to take the financial industry back to an era when there was a strict divide between traditional banking and speculative activities.The bill, which is also sponsored by Senator John McCain, Republican of Arizona, and two other senators, is named the 21s Century Glass-Steagall Act. Its intention is to create a modern version of the seminal Glass-Steagall legislation from the 1930s, which placed firm limits on what regulated banks could do. It was fully repealed in 1999, laying the groundwork for the mergers that created some of the biggest banks of today. If passed, it could force many of those banks to let go of their trading operations. text
I'm just to see what WSO's take on this was and the impact it will have on the Investment banking industry.
This, along with money mkt fund reform, is absolutely the right thing to do. I hope she succeeds, although, in truth, I think the odds are very slim. As to the impact on the investment banking industry, I don't expect a lot of it.
Sandy Weil even said it was a mistake to repeal it. Nuff' said. JPM, Citi, BoA are going to spearhead the assault.
I am 100% on board with this. Unless you like subsidizing TBTF supermarket banks, you should be on board with it, too.
Not sure how this bill would really help make our saving accounts safer. They are insured by FDIC and the whole '08 housing crisis stemmed from sub-prime/NINJA loans made by the retail banks that Warren wants to make "boring". Granted that IBs were the ones securitizing these things, but I still fail to see how this bill would really alleviate things very much.
I am by no means in support of TBTF and those that pose systemic risk though. Just seeing what you guys think.
I'm sure Wall Street executives abhor this piece of legislation, but it's necessary. There should be no such thing as "too big to fail".
1.) The demand for the insane amount of NINJA / subprime loans was driven by the CDO products the banks were putting together in order to sell "safe" investments that had high yield to investors. Investors' insatiable demand for yield drove the banks to need more and more subprime supply.
2.) Mortgage houses like New Century and Countrywide were the true culprits of the subprime origination mess. Yes, WaMu did as well, but again, see point #1.
Okay, I'm not trying to disagree, just hear other opinions (which are probably more experienced than mine).
But also, many of the IBs that were driving demand for these subprime/NINJA loans didn't have any retail operations. (GS,MS, Lehman, etc.) How would the separation of retail and institutional create safety?
The largest institutions that failed were (I thought) purely IBs?
I am aware that the mmf reforms are pretty big and important, but am just failing to grasp how this will really help eliminate systemic risk.
Yes, some of the large banks that needed a bailout were purely investment banks...but not all of them, and not by a long shot. JP Morgan, Citigroup, Bank of America...all supermarket banks that combine IB and commercial banking.
And, again, the demand for subprime was because they were used to create investment products for institutional investors. The Subprime / NINJA loan crap was the fuel for the CDO machine. It was basically a big game of musical chairs and the music came to a halt.
We should live in a world where investment banks CAN fail without bringing down commercial banks and the entire economy. We'll always have slowdowns, but we shouldn't have a system where risk is so incredibly intertwined on every level within commercial banks and insurance companies.
Good points. Btw, nice Margin Call ref if that is what you were using
It was the "boring" banks that originated the mortgages and it was the "boring" banks, well S&Ls that blew up in the last banking crisis. Glass-Steagall wouldn't solve anything.
Why did it happen? You have to look at risk. A boring commercial bank would usually look for quality credit if they were putting it on their balance sheets long term. Instead the Wall Street securitization orgy couldn't get enough mortgages and passing that risk to institutions hand over fist. So the boring banks didn't give a fuck and were just originators and getting it off their books in a month or two with the help/demand created by the IB's.
Also, S&L was a joke compared to 2008.
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