Love ya Mike....but youre wayyyy off there.....Gen

I didn't read your comment yet Karl, but i have to agree with you on this. Glass Steagall is a piece of regulatory puzzle. All regulation was dismantled or ignored. Glas Steagall, commodities and Future Act of 2000, opposition to derivatives regulation, suing states to prevent enforcement of anti predatory laws, ignoring 10,000 appraisers complaining of appraisal fraud, Greenspan refusing to maintain bank lending standards, elimination of leverage requirements- gee have i left anything out, that required anyone in the financial industry to take responsibility?

Glass Steagall should be reinstated.

Yeah- this one is all KD.

Quote:

But then Mish makes the "be careful what you wish for" argument
[snip]

The way I read it is "Understand you can't eat your cake and have it too."

It certainly was not an argument for reckless lending.

Actually, I'm in favor of far more reaching changes.
Dis-allow all non-direct customer banking activity. Period. Reduce investment banking to two major activities:
- advising customers
- executing risk mitigation trades on the customer's behalf (which even a central exchange can do, just like the payments business)

That's it.
Commercial banking becomes lending and processing.
That's it.

All thes bull**** market products, securitizations, bla bla bla was primarily set up to enable the investing public to make above market returns on their pensions and other savings (and enrich the bankers at the same time). Alpha will go away and folks will have to be happy with very small incremental returns over much longer period of time.

I think Mish is in favor of reinstating Glass-Steagall, however he poorly explains his stance so much so that it looks as though he is against it. He does very well in laying out the outcome of such legislation, but doesn't go so far as stating that it is a necessary dose of medicine to take.

I think that we may see an addendum to the article in the near future.

If we look at the broad picture in the context of a multi-decade boom cycle fueled by credit expansion, then the repeal of Glass-Steagall in '99 wasn't the main problem. Did it help matters? Of course not, but the top of this unsustainable credit cycle was eventually going to arrive, no matter what. Maybe the smart guys at GS and JPM really are smart, and they saw the repeal of these restrictions as a way to "extend and pretend" long enough to make their nuts and exit with G-IVs and a mansion (or two) in the Alps.

Never thought that Mish was very trustworthy. Always keep the door open to his Fed buddies.

How about Goldman Sachs becoming a bank overnight to get the TARP money?

Was Mish in favor of the Glass-Steagall law during Clinton? These guys took away all the restrictions so they could do whatever they wanted. Like the wild-wild west of finance.

Even Greenscam was in favor of dumping the restrictions. He said he was for Wall self-policing. How did that work out?

Those restrictions they repealed seemed to work until they removed them. This seems to provide some proof that they worked. Hank Paulson and others from Wall Street worked hard to repeal the safeguards.

They have already continued on the same path using choice #2. Do you actually see any change from that strategy?

It's already too late. We're cooked!

I've been reading Mish for years and I'm pretty sure Mish has always been opposed to Glass-Steagall.

It does sound like Mish let his libertarian leanings cloud his thinking there. I think Mish will change his mind on this one.

"already too late."

?
At least in the 1930's they had the balls to install regulations to stop the free-for-all. We haven't done anything except shower money on the thieves that forced the removal of the rules.

What have our regulators done to stop it from happening again? It's continue on with everything because we don't want to offend those contributing to our political campaigns.

As the other Mish stated (http://globaleconomicanalysis.blogspot.c.... they need to get rid of the soft wall between banking and brokerage and reinstate the brick wall again.

Trades50 writes -

Quote:

At least in the 1930's they had the balls to install regulations to stop the free-for-all. We haven't done anything except shower money on the thieves that forced the removal of the rules.

What have our regulators done to stop it from happening again? It's continue on with everything because we don't want to offend those contributing to our political campaigns.

Exactly. That's why I think it's actually pointless to even talk about preventing "the next crisis" when the current one is still ongoing and actually worsening from any rational perspective.

I don't give a F&*K where the market is trading because that doesn't reflect reality - although it seems to be trying to the last 2 days.....

"be careful what you wish for"
I think mish is only mentioning, that true valuations in the market, will not be very pretty. Most 401K investors, don't give a **** what the fundamentals of any particular stock are. They want to automatically make money and extend their stay on fantasy island.

Sounds as if Mish believes that bailouts are the cost of operating on an unregulated global playing field.

Trades
Keep in mind that it was 5 years after the 1929 peak that the SEC came into being. We are less than half that long into this crash. Perhaps Rep. Issa's pursuit of the AIG papers from the NY Fed will prove to be this cycle's equivalent of the Peccora Commission.

Mish is in favor of full reserve banking which is the only banking system that is self regulating and inherently stable. It does not require a Fed or FDIC and does not provide a political arena that can be gamed.

Fractional reserve banking, in whatever form it might take, will forever be the subject of political pressures. There is simply too much money to be made by bending the rules for the banks to ever give up trying.

Some form of Glass-Steagall is probably better then nothing and it is, at least, a place to start, but, as Mish pointed out, it would not prevent the problems caused by securitization or using credit derivatives to circumvent capital requirements.

Quote:

Some form of Glass-Steagall is probably better then nothing and it is, at least, a place to start, but, as Mish pointed out, it would not prevent the problems caused by securitization or using credit derivatives to circumvent capital requirements.

Nor will full-reserve banking.

Full-reserve banking isn't really banking though, as the only capital you can loan is that which is lent to you. Deposits under such a system cannot be lent at all.

All that does is dramatically drive up the cost of borrowed capital. This may be good or bad, but that's all it does, and it accomplishes exactly bupkis in preventing fraudulent activities.

KD, agreed, full reserve banking does not prevent fraud. It does however keep the results of fraud in the private arena (Madoff & Lehman) rather than pushing the costs into the public arena. It also undercuts the use of derivatives in circumventing capital requirements although derivatives could still be used to turn junk paper into AAA.

As Karl has pointed out before, you can have the best of both worlds by requiring 1:1 reserves on unsecured debt with traditional ratios for collateral loans. That assumes proper enforcement of course which will probably remain elusive until we throw the crooks out on their ear

Wageslave, realistically, what Karl has proposed is probably the best we can hope for in the current political climate. The problem that is inherent with any fractional reserve system is that it requires a central bank to be the buyer of last resort to insure that demand deposits can be redeemed on demand. If that function can be separated from the Feds ability to set interest rates and artificially expand the money supply through low short term rates and buying treasuries with printed money that would be a great improvement.

I don't know how any neutral, educated observer could oppose Glass Steagall.

I was watching Bloomberg today and they had some Republican pol on spouting bull**** opposing it. I've voted Republican most of my life, but if they stand in the way of this, they will have lost me. I hope they aren't stupid enough to run on a platform for the 2010 elections that the big banks shouldn't be regulated. This was a smart move by Obama.

Independent
I disagree that a central bank is an integral feature of any fractional-reserve system. Athough I disagree with Genesis on the desirability of F-R banking, independent and private F-R banks existed long before the first central bank. The break between the Second Bank of the US and the formation of the Fed meant there was no central bank in the US for about 80 years but we still had plenty of F-R banking.

Sushihorn, I agree that a central bank is not required but without a central bank, demand deposits may not be able to be redeemed on demand.