Originally posted at on October 10, 2011

Regulations – Glass Steagall – recession – depression – Dodd Frank – banking regulations

How did “regulation” become a dirty word?
Almost twenty years ago, I met an expat in the Netherlands from the United States who worked at Exxon. He lived in Montana and made most of his wealth trading commodities, as a result of his ties to farmers in the pork and agricultural businesses.
He said that if I wanted to make money in the stock market, it was a great way to go because there were regulations in place to prevent stock market fluctuations that were responsible for the Great Depression. He was talking about the Glass-Steagall Act, though at the time I had no idea the name of those regulations. The Act created a separation between investment banks and commercial banks effectively removing the conflict of interest between investment bankers who would have also served as officers of those commercial banks belonging to the same conglomerate. By repealing Glass-Steagall, it allowed Wall Street investment banking firms to gamble with their depositors’ money that was held in commercial banks owned or created by the investment firms.
Glass-Steagall effectively ended the boom and bust phenomenon from its passage in 1933 until its systematic disembowelment starting in 1980 and completed in 1999 by an aggressively pro-monopoly congress.
Now we are feeling the effects of a government who loosened regulations to the point where Wall Street had a field day with our money and their financial instruments, and we have yet to see the full extent of the carnage.
If we followed Dodd Frank in its entirety, it would be like Jenga: you pull one pin out and a whole bunch of things fall. Even Barney Frank said it would be difficult, if not impossible to enact Dodd Frank. It’s going to take a long time to unravel all the shenanigans that have happened in the financial industry sector.

In order for Dodd Frank to be effective, it needs to be implemented in its intended spirit, which is to:

1. Protect consumers by providing them clear information about their financial instruments

2. End too-big-to-fail bailouts

3. Create a council to warn the government when a company is taking untenable risks

4. Eliminate loopholes that allow over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders

5. Allow shareholders a say in how much executives make in salary and bonuses

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