Where is the US economy headed?

Bush had plenty of time to try to fix many of the problems that became exposed to the light of day during those eight years, but his laissez faire beliefs made him believe everything was hunky dory. As recent as last summer, both he and McCain told Americans that "our economy is fundamentally strong." If Clinton screwed up so much, why did they make such a statement? We can rack it up to incompetence.

You would fit the bill very well; I mean as a replacement for Rush.

The current destructive path was sustained during Bush's eight years in office. I won't give Bill Clinton a pass, but you must realize that the latest man responsible for this country was Bush - not Clinton. Bush had plenty of time to try to fix many of the problems that became exposed to the light of day during those eight years, but his laissez faire beliefs made him believe everything was hunky dory. As recent as last summer, both he and McCain told Americans that "our economy is fundamentally strong." If Clinton screwed up so much, why did they make such a statement? We can rack it up to incompetence.

You have learned nothing, and all you spew are ignorance.

LA man upset over job kills wife, 5 kids, himself
A man fatally shot his wife, five young children and himself Tuesday after he faxed a note to a TV station claiming the couple had just been fired from their hospital jobs and together planned the killings as an escape for the whole family. "Why leave our children in someone else's hands," Ervin Lupoe wrote in a letter posted late Tuesday on the KABC-TV Web site.

What Was The Glass-Steagall Act?
by Reem Heakal (Contact Author | Biography)
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Email ArticlePrint ArticleCommentsRSSIn 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, "improper banking activity", or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other. We will take a look at why the GSA was established and what led to its final repeal in 1999.

Reasons for the Act - Commercial Speculation
Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

Effects of the Act - Creating Barriers
Senator Carter Glass, a former Treasury secretary and the founder of the U.S. Federal Reserve System, was the primary force behind the GSA. Henry Bascom Steagall was a House of Representatives member and chairman of the House Banking and Currency Committee. Steagall agreed to support the act with Glass after an amendment was added permitting bank deposit insurance (this was the first time it was allowed).

As a collective reaction to one of the worst financial crises at the time, the GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled. Banks were given a year to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds. Financial giants at the time such as JP Morgan and Company, which were seen as part of the problem, were directly targeted and forced to cut their services and, hence, a main source of their income. By creating this barrier, the GSA was aiming to prevent the banks' use of deposits in the case of a failed underwriting job.

The GSA, however, was considered harsh by most in the financial community, and it was reported that even Glass himself moved to repeal the GSA shortly after it was passed, claiming it was an overreaction to the crisis.

Building More Walls
Despite the lax implementation of the GSA by the Federal Reserve Board, which is the regulator of U.S. banks, in 1956, Congress made another decision to regulate the banking sector. In an effort to prevent financial conglomerates from amassing too much power, the new act focused on banks involved in the insurance sector. Congress agreed that bearing the high risks undertaken in underwriting insurance is not good banking practice. Thus, as an extension of the Glass-Steagall Act, the Bank Holding Company Act further separated financial activities by creating a wall between insurance and banking. Even though banks could, and can still can, sell insurance and insurance products, underwriting insurance was forbidden.

Were the Walls Necessary? - The New Rules of the Gramm-Leach-Bliley Act
The limitations of the GSA on the banking sector sparked a debate over how much restriction is healthy for the industry. Many argued that allowing banks to diversify in moderation offers the banking industry the potential to reduce risk, so the restrictions of the GSA could have actually had an adverse effect, making the banking industry riskier rather than safer. Furthermore, big banks of the post-Enron market are likely to be more transparent, lessening the possibility of assuming too much risk or masking unsound investment decisions. As such, reputation has come to mean everything in today's market, and that could be enough to motivate banks to regulate themselves.

Consequently, to the delight of many in the banking industry (not everyone, however, was happy), in November of 1999 Congress repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks. Furthermore, the Gramm-Leach-Bliley Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities.

Conclusion
Although the barrier between commercial and investment banking aimed to prevent a loss of deposits in the event of investment failures, the reasons for the repeal of the GSA and the establishment of the Gramm-Leach-Bliley Act show that even regulatory attempts for safety can have adverse effects.

When are you going to get it through your pitiful brain that the current problem isn't isolated to Fannie and Freddie?

I have never claimed it was isolated to Fannie and Freddie, but I have claimed it was a piece of the puzzle, an important one the Democrats love to totally ign0re. You also must realize the culture of irresponsibility with Fannie and Freddie also affected all of the housing market, that being my opinion.

Cyclops, I have not claimed other factors did not play a part. If you can quote me as saying so, great, give it a try. I agree the SEC dropped the ball, big time.

And for you to claim that loans made by one sector did not affect other sectors, I don't believe it, the housing market is all connected.

You wish to blame it all on Republicans, not true, both are to blame.