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chad
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The Glass-Steagall Act

[ Edited ]

 

One event which probably impacted the recent crash of 2008,although you seldom hear about it, was the repeal of the Glass-Steagall Act, which was passed after the 1920's crash to essentially create more "transparency" in the banking sector. A quick review of the history of banking in both the U.S. and the U.K. seemed to indicate that some transparency in banking was needed for a healthy economy, at the very least. That is, there had to be some separation of banking activities to to prevent economic meltdowns and/or aid accountability. But Lloyd's bank in London and other banks swear that their success is dependent on either very little or on no transparency at all. Indeed, I, as an account holder, neither want to divulge how much I have in my account nor do I want other people to know about my banking activities. Can a balance of transparency be found? Or is transparaency something that people will attempt to control after a meltdown?  Or are transparency issues just politics as usual?

 

 

Up for commentary if you feel like it,

 

Chad

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"The Volcker Rule"

"The Volcker Rule" a provision of the Dodd-Frank Act, which basically increases "transparency" by separating investment and consumer banking, is still a sticky point in Congress- the rule is supposed to go into effect next July. But hey, Happy Fourth!

 

Chad

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proprietary trading

The sticky issue on the "Volcker rule" has and will be the definition of "proprietary trading." Certain exemptions were made to the "Volcker Rule", essentially benefiting entities other than big banks. And it looks like banks will want further clarification of the definition proprietary trading during implementation- which will probably include "clearer" definitions of short, medium and long- term investments- it's about time, this will be interesting....

 

Chad  

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Omnigeek
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Re: proprietary trading

Personally, I think the Glass-Steagall Act was more of a fig leaf than anything else and I find Dodd-Frank abhorrent.  My bank did very well during the recent crisis and it had nothing to do with any of the "protections" enacted by Dodd-Frank -- in fact, I am very afraid that Dodd-Frank will stunt some of the flexibility that has enabled my bank to do well.

 

I don't see why the two individuals most responsible for the financial mess of the last 20 years would have the key to fixing it and Geithner's Op-Ed defending Dodd-Frank just reinforces my opinion that he needs to go.  Geithner was probably Bush's worst hiring decision ever.

Currently reading: Destiny of the Republic, The Heritage of Shannara, Lonely Planet: Melbourne & Victoria
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Re: proprietary trading


Omnigeek wrote:

Personally, I think the Glass-Steagall Act was more of a fig leaf than anything else and I find Dodd-Frank abhorrent.  My bank did very well during the recent crisis and it had nothing to do with any of the "protections" enacted by Dodd-Frank -- in fact, I am very afraid that Dodd-Frank will stunt some of the flexibility that has enabled my bank to do well.

 

I don't see why the two individuals most responsible for the financial mess of the last 20 years would have the key to fixing it and Geithner's Op-Ed defending Dodd-Frank just reinforces my opinion that he needs to go.  Geithner was probably Bush's worst hiring decision ever.


 

 

May I ask what you attribute to your bank's survival of the crash?

 

Chad

 

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Re: proprietary trading


chad wrote:

 

May I ask what you attribute to your bank's survival of the crash?

 

Chad

 



Safe cautious investments like always rather than being driven by Washington DC policy like the Community Reinvestment Act.  Actually exercising fidiuciary responsibility to the customers and stockholders rather than assuming a government bailout if they made risky investments.  Pretty much NOT doing what Dodds and Frank were driving the big banks to do.  My bank wasn't unusual -- lots of smaller banks that WEREN'T being used as money pits for Dodds' and Frank's political pet projects survived the crash just fine.

Currently reading: Destiny of the Republic, The Heritage of Shannara, Lonely Planet: Melbourne & Victoria
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Re: proprietary trading


Omnigeek wrote:

chad wrote:

 

May I ask what you attribute to your bank's survival of the crash?

 

Chad

 



Safe cautious investments like always rather than being driven by Washington DC policy like the Community Reinvestment Act.  Actually exercising fidiuciary responsibility to the customers and stockholders rather than assuming a government bailout if they made risky investments.  Pretty much NOT doing what Dodds and Frank were driving the big banks to do.  My bank wasn't unusual -- lots of smaller banks that WEREN'T being used as money pits for Dodds' and Frank's political pet projects survived the crash just fine.


 

Well, we don't hear too much about the subprime success stories, but my understanding is that there are a few. By the sound of your reply, it doesn't sound like your bank partook in too much of the subprime lending to which many economists attribute the recent market crash. And my understanding is that the bank deregulation of 2000(?) allowed more of this type of lending to occur. With an easing of regs, banks could now take the risks that they wouldn't have taken otherwise. I'm not sure the bank deregs were miracles intended for the small business or the poverty-stricken. That is, the deregs were more or less reactionary to the to the southeast asia financial meltdown- there was a crash before the the last one. Maybe a combination of things?

 

 

Chad

.

 

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Re: proprietary trading

What I was seeing when I was in DC in the late 90s was a huge upswell in people using their homes as ATMs.  The Clinton administration appeared (I wasn't in it so I don't know for sure) to think that they could grow themselves out of the budget deficits (there never really was a surplus) by continuing to push an expansion in home ownership which would drive jobs in the construction industry, decorating industry, etc.  Increased home sales resulted in increased tax revenues and they could think about repaying the IOUs they were taking out on Social Security (counting the money twice as revenue to SS and the general fund but never counting the IOUs to the phantom "trust fund").

 

At this point, Fannie Mae and Freddie Mac were cut loose to dramatically increase their loan underwriting AND the Community Reinvestment Act was expanded to force the banks to increase their subprime lending (thank you Barney Frank).  There were even articles in the Washington Post (no conservative rag) about people making $60k/year living in $400K houses and thinking they could sell in 3-6 months, make a ton of cash and move on to the next big house until they somehow upgraded themselves into being wealthy.

 

Bush appeared to want to end the housing bubble but was afraid it might crash the entire national economy (like what happened in 2008) if he did so because of the fragile nature of the national economy immediately after 9/11.  He DID warn Congress several times and was told by both Frank and Dodds to quit worrying, Fannie and Freddie had no problems and were rock solid.  One wonders if the crash then would have been as bad as in 2008 if he'd gone ahead and fought Frank and Dodds over the housing bubble.

Currently reading: Destiny of the Republic, The Heritage of Shannara, Lonely Planet: Melbourne & Victoria
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The American Dream

[ Edited ]

The entire economy (both U.S. and World) of the 90's era gave many people the impression that they were living in an expanding economy. And then, at some point during the 90's era or sometime thereafter, the entire era was deemed yet another bubble (i.e. a "dot.com" bubble, a "real estate" bubble, or some other kind of bubble), which is what I just stated- an impression that the economy is expanding, but a false one. So when I looked at this era as a whole, I think the high techs and the real estate markets expanded, but maybe not as much as people wanted them to expand, and also not where they wanted them to expand. Homes were certainly going up, and they were going up for people who could not afford them. So, whether you think that "Washington" was pocketing all, or some of the money of the real estate and/or tech markets or whther you didn't, the classic "American Dream" seemed to still be the drivng force of the 90's, much like the 1920's, which ended in a crash in 1929. And  I'd say  a crash occurred in 1997( a real crash on 9/11/2001:smileysad:) and 2008- the former began in another country, and the latter in our own country. 

 

So, do we have to keep bubbling until everyone in the world has the "American Dream?"  Consider that people still don't have this in our own country and also consider that Americans have died for it, either for their own dream, or for someone else's American dream- sometimes I think they died unknowingly- it's absolutely amazing..... 

 

Chad

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Transparency

Since the market crash of 2008, there arose a sense of urgency for more transparency in banking. One thought was that if press conferences could be held after reserve board meetings, then more transparency could be achieved through a more efficient exchange of information regarding new monetary policies. And at the first news conference with the fed reserve in April, Bernanke was asked "to explain exactly how long the Fed's "extended period" of near-zero interest rates" would last. And "he said the term suggested it would be at least through a couple of policymaking meetings." Can the fed reserve tell us when the interest rates are to be lowered or raised and by how much, exactly? 

 

 

http://latimesblogs.latimes.com/money_co/2011/04/bernanke-news-conference-federal-reserve-inflation....

 

Chad

 

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Re: Transparency


chad wrote:

Since the market crash of 2008, there arose a sense of urgency for more transparency in banking. One thought was that if press conferences could be held after reserve board meetings, then more transparency could be achieved through a more efficient exchange of information regarding new monetary policies. And at the first news conference with the fed reserve in April, Bernanke was asked "to explain exactly how long the Fed's "extended period" of near-zero interest rates" would last. And "he said the term suggested it would be at least through a couple of policymaking meetings." Can the fed reserve tell us when the interest rates are to be lowered or raised and by how much, exactly? 

 

 

http://latimesblogs.latimes.com/money_co/2011/04/bernanke-news-conference-federal-reserve-inflation....

 

Chad

 


 

I think the fed funds rate has been consistently at .25% not 0%, but I think it was close enough for people to say 0%. But it has been very low since the crash- not really good news. But the economy has somehow managed to survive. Other countries couldn't survive for as long a time I think. But I don't think investors care about our interest rate so much, because the media is constantly reporting our debt burden anyway (or, in other words, the value of our dollar) -but I don't think we can keep this low forever....

 

Chad    

 

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adjusting rates

The fed funds rate should go up or down with the changing economy. I consider it to be an imperfect way of tweaking the economy-  quite often an adjustment is post-facto, or prematurely, in response to economic information and/or events. Right now its the best we have....There was an intersting article I came across on dollar coins, which always seem to fizzle whenever the treasury introduces them. Apparently there's a stockpile of dollar coins which we can use- it might save money, but I think it will oinly make a dent in the deficit now if we decide on using them again.... 

 

Chad