Loss of Glass-Steagall Act is the gain of the Law of the Community Reinvestment
The Gramm-Leach-Bliley Act (GLBA) of 1999, part of the repealed Glass-Steagall Act of 1933, which prohibited banks to consolidate with investment houses, while GLBA also extended the influence of the Law Community Reinvestment 1977 requires banks to make loans to borrowers at risk. Although the proposed tax economic mortal by the GLBA was not made immediately after passage by the rapid appreciation of housing values and both the markets shortly after the financial crisis began to undermine the economic foundations the world in late 2007 caused many experts to begin to point to this bill in 1999 that the first catalyst.
The Glass-Steagall Act
Enacted in the wake of the Great Depression, the Glass-Steagall Act created the Federal Deposit Insurance Corporation (FDIC) and established a series of banking reforms, including a provision prohibiting the operation of banks and other financial institutions. After the Congress of the Untied States has held numerous hearings to investigate the causes of the stock market crash of 1929, it was determined that the mix of advertising and investment banking in the 1920s created a high level of fraud and conflict of interests in securities transactions. 1933 The Congress also prophetically reasoned that due to the risks inherent in equity markets, losses stock capitalization can cause problems for banks and threaten the integrity of bank deposits. In turn, because the federal government guarantees of these deposits, are responsible for paying huge sums of money if bank deposits were exhausted as a result of securities losses.
The Community Reinvestment Act
The aim of the Community Reinvestment Act of 1977 (CRA) was to encourage commercial banks to grant denied loans in areas of low and moderate discrimination and the prohibition of banks to lend in these areas called "red line". Changes subsequent regulation of the CRA, including the implementation of compulsory quotas in the credit system of banks, led to 467 billion dollars in loans lenders and borrowers in the ARC of low and middle income between 1993 and 1998, according to statistics provided by the U.S. Treasury Department in April 2000. The Treasury Department also reported that loans to borrowers increased by 39% over the same period of time. In an article for the New York Post, said economist Stan Liebowitz has argued that expanding the scope of the CRA in the 1990s encouraged a loosening of standards credit in the banking sector. Similarly, the Austrian economist Russell Roberts wrote in an essay CRA Wall Street Journal that promotes low-income housing by pressing institutions providing credit to people who might otherwise be rejected as bad credit risk.
The Gramm-Leach-Bliley
After years of lobbying by the banking sector for the repeal of the Glass-Steagall, has erected a wall between commercial and investment banks, the Treasury Secretary in 1999, President Clinton Robert Rubin has taken the initiative to urge fellow liberals in Congress to meet with their counterparts across the aisle GLBA to finally pass the bipartisan votes in the Senate 90-8 and 362-57 in the House of Representatives. President Clinton signed the bill into law 12 November 1999, but the fact that after establishing that the GLBA requires that mergers between commercial banks and investment houses that are rigorously reviewed by regulatory authorities CRA. Accordingly, banks could not make the acquisition, apparently lucrative houses investment without follow the necessary share of lending to higher risk of CRA, which only adds more to encourage banks to make loans to high risk and deeper immersion in the activities of sub-prime mortgages.
The Creation of the first financial supermarket
Citibank was the main lobbying force behind the repeal of the Glass-Stegall, had tried to combine permanently with three investment houses Primerica Smith Barney and Shearson for several years. Repeal Glass Stegall in late 1999, Citibank made the merger immediately under a permanent financial supermarket known as Citigroup. Clinton, former Treasury Secretary Robert Rubin was immediately rewarded for his efforts as a key advocate of the repeal of the Glass-Steagall, in November of 1999 he was appointed to the Board of Directors of Citigroup, Like the Clinton administration left office in December of that year. In fact, Forbes said that Rubin has received more than $ 17 million in compensation and $ 33 million stock options before resigning as Chairman of Citigroup now in financial difficulties, in January 2009. People are not so surprising, Rubin appears Marketwatch as one of the "10 most ethical business" shortly thereafter.
The merger of Bank carries economic benefits
As feared by supporters of the Glass-Steagall Act and critics of the CRA, the loss of Citigroup's securities activities related to the sub-prime crisis and the widespread financial panic that followed has resulted in tens of billions of dollars in federal aid. Unfortunately, Citigroup was not alone in the post-1999 concentration, loss of values and the bailout of class: Wachovia Bank has acquired AG Edwards and two Golden West, Bank of America bought Countrywide and Merrill Lynch, JP Morgan Chase and Bear Stearns bought two, and the list continues.
When the GLBA removed the protective walls between commercial banks and investment Glass-Steagall Act had previously held firmly in place, there DealMakers had nothing prevents the banks from colluding with analysts at the investment house show positive results for customers to improve their collective performance. Banks no longer have to worry about the test imposed by neutral third party security analysts, when the level of due diligence by analysts in their own business is much more favorable. Mutual funds CRA can mix freely sub-debt with loans from subprime in a normal first collateralized debt obligations (CDOs) before selling them as securities backed mortgage through a different arm of the same financial institution. These financial supermarkets may actually be required for the share of subprime loans and the CRA to provide investors with greater ease.
Transparency and control created when a company is exploring, negotiating and finally dissolved the purchase of another company. Only those with conflicts of interest have been authorized to weigh, but why should they when they are in a position to make huge profits in the financial sector before 2008? Hopefully, once the federal government made an infusion of billions of dollars in these difficult financial supermarkets, can begin to solve the underlying problem by repealing the GLBA and the reconstruction of Glass-Steagall walls.
About the Author
Brian S. Icenhower, BS, JD, CRB, CRS, ABR is an attorney, a real estate broker, an instructor in real estate law at the College of the Sequoias, a California Association of Realtors Director, a real estate litigation expert witnes, a prosecution consultant for district attorney real estate fraud units, and a frequently published author. He may be reached at bicenhower@icenhowerrealestate.com or at http://www.icenhowerrealestate.com.
BAC 10/7/09