What is the Glass-Steagall Act?
Monday, 05/4/2009 - 3:30 pm by Jason Selfe | 9 Comments
[Note: updated on 8.6.2010]
What is the Glass-Steagall Act of 1933?
The Glass-Steagall Act was introduced during the Great Depression by former Treasury Secretary Sen. Carter Glass (D-VA) and Chairman of the House Banking and Currency Committee Rep. Henry B. Steagall (D-AL). As one of the first acts of FDR’s New Deal, the legislation segregated commercial banks from securities markets, established the Federal Deposit Insurance Corporation (FDIC) and enhanced the regulatory powers of the Federal Reserve over banks.
What’s the significance?
The stock market collapsed in 1929; customers rushed to withdraw their funds, and by 1933, roughly 9,000 banks in the United States had failed. The Glass-Steagall Act and the FDIC it created were attempts to restore public trust in the deposit system and stem the rush to withdraw. The act also recognized inherent risks in securities markets, making it impossible for banks to serve simultaneously as brokerages.
The act’s repeal in 1999 paved the way for bank investments in, among other things, mortgage-backed securities and collateralized debt obligations—the tipping points of the current meltdown. This has led some commentators, including James K. Galbraith, to argue that the repeal of Glass-Steagall helped fuel the financial crisis.
Who’s talking about it?
Marshall Auerback warns that FinReg simply keeps the post-Glass-Steagall status quo…Robert Reich thinks FinReg falls short for not reinstating Glass-Steagall…Bill Moyers and Michael Winship of Progressive Democrats of America question the honesty of Lawrence Summers as chief economic advisor and gatekeeper to President Obama, given his past connection to Wall Street’s fight against Glass-Steagall … Blogger William Kaufman looks at the bipartisan origins of Glass-Steagall’s repeal and its connection to the current financial crisis… Sen. Wayne Allard (R-CO), former ranking member on the senate Securities, Insurance, and Investment Subcommittee, still supports the repeal of Glass-Steagall, arguing that it was necessary for the United States to remain competitive in a global market…and Kevin Drum of Mother Jones wonders whether the failure of other financial institutions shows the Glass-Steagall repeal isn’t really to blame.
Capitalism works but only if it is regulated. Football works too, but only if it is regulated. Take the referes off the field and it is no longer football. Take the regulations out of capitalism and it is no longer capitalism, it’s just a casino.
Posted by Tim Buban | December 2nd, 2009 at 12:03 am
On December 3, 1888, President Grover Cleveland delivered his annual address to a joint session of Congress:
“As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel. Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.”
Posted by Stu | December 24th, 2009 at 11:27 pm
The financial industry is no place for capitalism.
How’s that? Exterminate ‘em just like we did to the S & Ls. We don’t need banks. Operate as a not-for-profit credit union or hit the highway.
Posted by Jill | January 13th, 2010 at 4:26 am
As an X scecuities Rep I was appaled when the Act was eliminated. Not only should the the act be reistablished, it should be strengthened with sevier penalties for the people & companies who violate it.I do not believe that we would be in the current financial situation if the Act were still in effect. The Banks should split back into seperate entities, with no affiliations
Posted by Treacy mueller | January 22nd, 2010 at 1:38 pm
Would we even need the FDIC if we didn’t have fractional reserve banking?
Posted by Curt | February 4th, 2010 at 10:53 am
The text of the act is apparently very hard to find. What don’t they want us to know?
http://www.counterpunch.org/martens03262010.html
Posted by jimbee | April 22nd, 2010 at 3:37 pm
oh!!! let her rip, is it not the free market ?
Every thing should run wild and may the best man win
America always was the survival of the fittest it is the only way
I wish i was a banker, good luck to the boys
Posted by cosmo | April 23rd, 2010 at 3:22 pm
There has never been and most likely never will be, a Senator Wayne Adler of Colorado…HELLO?
Try Wayne ALLARD! Geeesh!
You got one thing right…he was a Republican…
Posted by amethystlady2 | August 17th, 2010 at 11:03 pm
amethystlady2,
Our apologies for the spelling error. Thank you for bringing it to our attention; it’s been corrected.
Posted by Bryce | August 18th, 2010 at 10:37 am