Is it true or false that the crash of the stock market in had a renewing effect on the economy as it freed a great deal of money for other uses. – Simple Simple

The move repealed the Glass-Steagall Act ofa set of reforms responsible for the longest crisis-free period in U. At the time, industry lobbyists argued that this modern experiment in deregulation would bring greater stability and competitiveness to the financial services industry. Today, it is clear that they were wrong—and spectacularly so.

As Washington debates the best way to prevent future crises, it is helpful to understand how public policy helped bring about the current one. The measure established the concept of deposit insurance and set up the Federal Deposit Insurance Corporation to provide it. Glass-Steagall 2 also erected a firewall between commercial banks, which take deposits and make loans, and investment banks, which organize the sale of bonds and stocks.

Between andmore than 4, U.

Stock Market Crash of - Facts & Summary - iwysuhod.web.fc2.com

In MarchPresident Roosevelt had been forced to shut down the entire banking system for four days. The law at the time allowed banks to traffic freely in securities.

A congressional investigation led by a firebrand prosecutor named Ferdinand Pecora unearthed massive evidence of recklessness, cronyism, and fraud both in the use of depositor funds and in the promotion of securities for sale to the public. National City Bank now Citibank had taken a heap of failed loans to Latin American governments, packaged them as securities, and unloaded them on unsuspecting investors.

Banking and securities underwriting made for a poisonous combination, many people concluded. The Glass-Steagall Act accordingly gave banks a year to decide: Financial panics had been regular and devastating occurrences since before the Civil War. While individual banks continued to fail occasionally, their depositors escaped largely unscathed.

Trust in the stock and bond markets also grew; for investors around the world, the U. Building on the apparent success of s banking and securities regulation, Congress decided to establish a Glass-Steagall-style wall between banking and insurance. Under the Bank Holding Act ofbanks were permitted to sell insurance, but not to underwrite it.

Had that rule remained in force down to the present day, AIG would have been unable to weave banks into its web of toxic credit derivatives, which are structured as insurance contracts. By the early s, anti-regulation advocates had won sway in Washington. With steady weakening of the financial regulatory structure came a new period of crisis and volatility that began with the Savings and Loan crisis 4 and has yet to end.

In the spring ofthe Federal Reserve Board voted to let banks engage in a range of securities underwriting activities. One of the dissenting votes was cast by Fed chairman Paul Volcker, sirius and stock market feared among other things that banks would again seek to profit from lucrative loan securitization opportunities. His successor, Alan Greenspan, had more faith in the self-correcting machinery of unfettered markets.

During the presidency of George H. Bush, Greenspan and Treasury Secretary James Baker took steps that weakened Glass-Steagall by, for example, letting banks underwrite municipal bonds on the premise that they were safe by definition. Inthe administration called on Congress to repeal the law outright.

Although a bill to that effect was voted down in the House of Representatives that year, the anti-Glass-Steagall movement was clearly gaining steam. In the interim, financier Sanford Weil had taken advantage of various exemptions in the law to build an empire of insurance, commercial-banking, and investment-banking units. The idea was the crash of the stock market in 1929 had a renewing effect on the economy brazen violation of Glass-Steagall.

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But by now, Greenspan had prevailed on the Fed to let unitedhealth group stock option scandal holding companies own investment-bank affiliates with as much as 25 percent of their business in securities underwriting. The previous ceiling had been 10 percent. Meanwhile, the Clinton administration, with the crash of the stock market in 1929 had a renewing effect on the economy ex-investment banker—and future Citigroup Chairman—Robert Rubin as Treasury Secretary, was sympathetic to the case for bigger and more diversified banks in the name of American global competitiveness.

After heads-up phone calls to Greenspan, Rubin, and Bill Clinton, Weil and Reed announced the biggest-ever corporate merger, resulting in the biggest-ever financial services company. For a brief time, it appeared that the Fed might eur usd exchange rate bloomberg the new entity to sell off its insurance operations.

He had animal hospital west woodstock ga right. The final push took a year and a half, and entailed hundreds of millions of dollars in lobbying and campaign contributions. But on November 12,Clinton signed the Financial Modernization Act commonly known as Gramm-Leach-Bliley into law. On Capitol Hill, only a few people resisted.

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Some House Democrats initially argued that the banks should not be given so much without delivering anything in return.

Most of them relented, however, after the bill was sweetened with provisions that modestly expanded the Community Reinvestment Act. In the end, the vote in both chambers was overwhelming. Only eight Senators voted no: Some of the leading proponents of repeal were among its most conspicuous beneficiaries. Phil Gramm, after retiring inwent to work for UBS AG, a Swiss commercial bank that moved into investment banking, with disastrous results.

Did the abandonment of Glass-Steagall contribute to the financial meltdown?

Some commentators profess to see little connection, since, they say, most of the damage was sown by pure investment banks such as MorganStanley, Bear Stearns, and Lehman Brothers and by the effectively unregulated, runaway insurance company, AIG.

But commercial banks played a crucial role as buyers and sellers of mortgage-backed securities, credit-default swaps, and other explosive financial derivatives. Without the watering down and ultimate repeal of Glass-Steagall, the banks would have been barred from most of these activities. The market and appetite for derivatives would then have been far smaller, and Washington might not have felt a need to rescue the institutional victims. As a candidate for president, Barack Obama seemed to see the link.

Today, though, the Obama administration seems disposed to let giants be giants, while subjecting them to more regulation and developing an emergency plan to unwind those that run amok in the future. By contrast, Paul Volcker would restore the basic principle of Glass-Steagall, with banks restricted to banking again. These other activities create conflicts of interest.

They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties… and ultimately fails. Former Citicorp CEO John Reed—co-architect of the great merger—recently voiced the same opinion. Sign up for our emails to stay updated on what we're doing and how you can help. New York, NY About About Demos Staff Fellows Board of Trustees Job Opportunities Why Support Demos?

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