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Another retread?
Posted by: McQ on Friday, November 07, 2008

One of the names being seriously talked about for Secretary of the Treasury is Larry Summers.

Summers, as most know, was Sec Tres for Bill Clinton. He was also a proponent of the repeal of Glass-Stegal Financial Services Act. Congress repealed it and Bill Clinton signed the new law, the Gramm-Leach-Billey Act, into effect. From a NY Times article about that event, here's Summers:
“With this bill,” Treasury Secretary Lawrence H. Summers said, “the American financial system takes a major step forward toward the 21st Century — one that will benefit American consumers, business and the national economy.” Opponents said it would have the opposite effect, creating behemoths that will raise fees, violate customers’ privacy by sharing and selling their personal data, and put the stability of the financial system at risk.
Economists Robert Ekelund and Mark Thornton have criticized the Act as contributing to the 2007 subprime mortgage financial crisis.
[They argue] that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".
So we have one of the architects of the financial disaster (and yes, I know it was a Republican Congress which passed the bill - but it obviously had the support of the Democratic administration and Summers specifically) who was completely wrong in his assessment of the impact of the bill he favored again being considered for the job of Secretary of the Treasury? To me that should be an automatic disqualifier.

All is forgiven Larry. Come and give it another shot. This new administration is all is all about "outsiders" vs. "insiders"

Oh, and if you're interested, you can watch a video here on Summer's thoughts on redistributing the wealth.
 
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Is the jury out on Gramm-Leach-Billey ? It still doesn’t convince me that allowing the banking system to merge divisions led to all this. Did it convince banks that they could give bad home loans and lower requirements for buyers? Did it contribute to the poor oversight of marketing mortgage backed securities to investment firms?

Someone explain how Gramm-Leach-Billey led to this mess, other than quoting an expert saying "it could ruin the financial industry."
 
Written By: James D
URL: http://
Uh, I think the included link quoting the two economists heads you in that direction. And, given what has happened it seems their criticism has some credibility.
 
Written By: McQ
URL: http://www.QandO.net
Things are unfolding as I thought they would and that is a bad thing.

I suppose that Cpt Sarcastic will come in to tell us it is a great idea. Well, people will definitely be wanting hoope and change in 2012 :)
 
Written By: capt joe
URL: http://
McQ, The wikipedia entry just had that quote as the criticism. It doesn’t really explain how the act contributed to the subprime mortgage crisis is any detailed way.
 
Written By: James D
URL: http://
Well James, the quote which they provide - "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly" - has had its two main points discussed here in depth. Try looking through this category.
 
Written By: McQ
URL: http://www.QandO.net
Well, it appears that Rahm had his connections to subprime as well.
 
Written By: capt joe
URL: http://
I don’t think clearing the way for JP Morgan to buy Bear Stearns caused Bear Stearns to crash and burn.
 
Written By: Twba
URL: http://yahoo.com
McQ, you are correct to point out that there was bi-partisan support for Gramm-Leach-Billey. In addition to Clinton signing the bill, the majority of Congressional Democrats voted for it. That Wikipedia article also includes this little nugget:
Democrats agreed to support the bill after Republicans agreed to strengthen provisions of the anti-redlining Community Reinvestment Act and address certain privacy concerns; the conference committee then finished its work by the beginning of November.
In sum, there is bi-partisan responsibility for this mess depsite Obama’s claim that it is the result of 8 years of Bush’s "deregulation" whatever that means.
 
Written By: jt007
URL: http://
This is a great idea!

Actually, I have no idea on a Treasury Secretary appointment. Any real candidate for this position is so far above my paygrade in economic understanding that I could only determine in retrospect whether it was a good decision.

I can argue that Jimmy Carter’s appointment of Paul Volcker was a good choice for the Fed Chair, but I could not have supported an argument at the time as to why Volcker would have been better than Arthur Burns, other than Arthur Burns sucked and Volcker might not. (Sorry to get technical there)

So I will defer to the economic geniuses here to vet this appointment.

I think y’all are just suffering from election mode continuation syndrome.

 
Written By: CaptinSarcastic
URL: http://
The notion that Gramm-Leach-Bliley caused the meltdown is false. To the contrary, the only institutions that remained unscathed were the big commercial banks that had managed to diversify their holdings in the wake of GLB.

I’ll note that the article by the two economists on GLB fundamentally misunderstands Glass-Steagall. They claim that it prohibited banks from holding mortgage backed securities, when it did no such thing. It prohibited banks from underwriting the securities, but that’s a different thing altogether.
 
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