Why should or shouldn't the Glass Steagal Act be reinstated?Why should or shouldn't the Glass Steagal Act be reinstated?

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litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

We had some opportunities to prevent the financial crisis, or at least see it coming, but we did not take them. The banks just got bigger and bigger, and more and more greedy. However they are very powerful. They ca easily pay off politicians to prevent these laws from being passed, or prevent them from being enforced.
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Ashley Kannan | Middle School Teacher | (Level 3) Distinguished Educator

Posted on

I am not sure if the act needs to be reinstated.  While there are some distinct parallels between the 1930s and now from an economic standpoint, perhaps the modern economic condition needs more context specific legislation.  I will say that the need that called for the act and the reform it prompted during the Great Depression might be present today.  A case can be made that some type of federal oversight over mortgage lending practices, for example, are definitely in order.  The bursting of the housing bubble revealed some predatory lending practices that certainly need to be examined.  Federal legislation that forbids such a deliberate and targeted practice might be needed.

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brettd | High School Teacher | (Level 2) Educator Emeritus

Posted on

I agree with the above post completely, and I would also add that an investment bank and consumer banks deal in quite different forms of risk.  Merging them changes the nature of those banks and the way in which they lend money and do business - changes it in a way that is, or can be, quite reckless.

Secondly I would add that the Glass-Steagall Act had a quite impressive track record, having been passed during the New Deal in the 1930s and repealed in 1999.  If the legislation/regulation functioned effectively and helped to prevent a repeat of the bank collapse that in part led to the Great Depression, then WHY would you repeal it at all?  It seems to me that programs that have proven track records should be maintained.

The only reason that's obvious to me is that there is a great deal of money to be made for a select few people in getting rid of that regulation.  Unfortunately it was making money while risking tens of millions of Americans retirement security.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

This has become a really big deal since the financial crash that happened back in late 2008.  The idea behind the Glass Steagal Act was that consumer banks and investment banks should be kept separate.

The major argument for reinstating the act is the idea that the big conglomerate banks become "too big to fail" and end up getting bailed out by the government.  The main argument against reinstating the Act is that it prevents banks from being more efficient -- more efficiency would lead to more profits for the banks and their investors.

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