Morning Commentary
In another move away from traditional conservative values, the new Republican platform is looking to bring the Glass-Stegall Act back to govern the financial sector. The Act was developed in the aftermath of the 1929 stock market crash that subsequently slid into the Great Depression. The Senate commissioned an investigation into the reasons for the crash; hence, Ferdinand Pecora, an assistant district attorney for New York County was hired to write the final report.
His scathing accounts of the industry during public hearings were so intense that the chairman of National City (modern Citigroup) was forced to resign.
Although many thought the terms were too tough, the industry faced a massive public outcry and Washington needed someone to blame. (Some things never change)
Wall Street Pays a Price
The Glass–Steagall separation of commercial and investment banking was divided into four sections of the 1933 Banking Act (sections 16, 20, 21, and 32). The Banking Act of 1935 clarified the 1933 legislation and resolved inconsistencies in it. Together, they prevented commercial Federal Reserve member banks from the following:
-Wikipedia
Over the years, the laws that came out of the bill began to weigh heavily on American banks while the rest of the world took advantage. It’s really difficult to be the world’s top economy when your banks aren’t the world’s largest or the most powerful ones. However, some will say that argument is folly considering that the top banks, according to the number of assets, led the world into the Great Recession in 2008.
Rank |
Name |
Country |
Total Assets ($b) |
1 |
Royal Bank of Scotland Group |
UK |
3,807 |
2 |
Deutsche Bank |
Germany |
2,974 |
3 |
BNP Paribas |
France |
2,494 |
4 |
Barclays |
UK |
2,459 |
5 |
HSBC |
UK |
2,354 |
6 |
Crédit Agricole |
France |
2,268 |
7 |
Citi |
United States |
2,188 |
8 |
UBS |
Switzerland |
2,019 |
9 |
Bank of America |
United States |
1,716 |
10 |
Société Générale |
France |
1,578 |
11 |
JPMorgan Chase |
United States |
1,562 |
12 |
Mizuho Financial group |
Japan |
1,507 |
13 |
UniCredit |
Italy |
1,504 |
14 |
ING |
Netherlands |
1,463 |
15 |
Santander |
Spain |
1,344 |
16 |
Bank of Tokyo-Mitsubishi UFJ |
Japan |
1,337 |
17 |
HBOS |
UK |
1,336 |
18 |
Credit Suisse Group |
Switzerland |
1,209 |
19 |
Industrial & Commercial Bank |
China |
1,189 |
20 |
Fortis |
Belgium |
1,129 |
21 |
Goldman Sachs Group |
United States |
1,120 |
22 |
Sumitomo Mitsui Financial Group |
Japan |
1,081 |
23 |
Morgan Stanley |
United States |
1,045 |
24 |
Merrill Lynch |
United States |
1,020 |
25 |
Commerzbank |
Germany |
908 |
Citi Turns the Table
The bill was signed into law by FDR and overseen by the banking industry until 1999, when Gramm – Leach-Bliley undid key provisions.
Ironically, it was a move by Citicorp (the old National City Bank) that put the wheels into motion.
In 1998, the company bid to acquire Travelers Group, even though the combined companies would violate existing laws.
The Federal Reserve gave the deal a temporary waiver from the law. One year later, a bill authored by three Republican lawmakers made it official:
There is no way the Republican Party of Phil Gramm could have guessed it would want more regulations and greater government control of markets.
So, why the change - is Wall Street really going to be corralled by Republicans?
Bernie Factor
The fact that most Americans have a negative opinion of Wall Street and many associate Democratic nominee Hillary Clinton and her millions made on the speaking circuit as the candidate of Wall Street, makes it very enticing to jump on the bandwagon.
Moreover, Bernie Sanders hammered away at Wall Street and its massive donations and speaking fees to Hillary Clinton, so GOP strategists see his voters still up for grabs. (Pew has Hillary capturing 85% of them, but other polls show her support among this crowd waning fast).
It might be a smart political strategy, but it’s also part of a tsunami of change from the old GOP orthodoxy of less government and regulations. While I don’t think this opens the floodgates to a complete renovation of the GOP, it is clear that businesses might have it more difficult to find the best ways possible to bolster the bottom line.
However, by the same token, I don’t think separating investment banks from commercial banks is going to destroy Wall Street; the best deterrent would be a pledge not to bailout bad actors.
Today’s Session
Don’t look now, but the Dow Jones Industrial Average has been up for 8 straight sessions. Many of those sessions weren’t blockbuster, and in fact, it barely edged into the plus column ahead of the closing bell. That might not be the case today as Microsoft (MSFT) should power the blue chip index higher after a strong earnings report.
There are clear tech stories that include cloud and ability to gather and analyze data. The security part gets the headlines, but it has hampered of late by miscues and hype- but it will live up to that hype one day, too. I like that older tech names from IBM to Microsoft, and SAP this morning. These companies are getting it done and reinventing themselves to stay in the game(s).
Comments |
Consider looking a little deeper into the initiating cause of the great recession. John Toy on 7/20/2016 10:22:23 AM |
"The best deterrent would be a pledge" ?? And we know how those Republican pledges go . . February 1933-a run on the banks necessitated Glass-Steagall at the years end. 100% agree on "no bailouts" Put them into receivership so the little guys get a little bigger and avoid crony capitalism aka "Crapitalism" & corporations to big to fail. Every business needs The Right to Fail But the ability to succeed. Eric Stewart on 7/21/2016 2:39:54 PM |
Oh, and who got the great job at Citi-Bank after the demise of Glass-Steagall . . ? . former Secretary of the Treasury of the United States of America Robert Rubin . . Hmmmm Now, those proprietary derivatives are a whole HOLE new subject . . hmmmm Eric Stewart on 7/21/2016 2:49:49 PM |
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