The Pros And Cons Of The Huge Depression

The Glass-Steagall Act (GSA), a part of the Banking Act of 1933 consisting of section 16, 20, 21 and 32 was enacted to correct the crippled financial system in the US. Senator Carter Glass advocated in favour of separation arguing that involvement of commercial banks with corporate securities caused conflict of interest. The GSA prohibited commercial banks or any member of the Federal Reserve from underwriting, trading or holding corporate securities for their own account

On June 16, 1933, President Roosevelt signed into law the widely debated Glass-Steagall Banking Act. Sponsored by Virginia’s U.S. Senator Carter Glass and Alabama’s U.S. Representative Henry Steagall, the Glass-Steagall Banking Act was one of the attempts to restore the American people’s confidence in the banking system. Congress knew the current banking system needed reform. They desired to restrict the use of bank credit for speculation and instead direct bank credit to more productive uses, such as agriculture, commerce, and industry.

Destruction, debt, damage––just a few words that describe the dark age of Prohibition. America, in the midst of a decade of booming economy, thriving art, and post-war excitement, became shrouded in the dark cloud of Prohibition. The years following would be tainted with illegal behavior, sneakiness, and a culture desperate for alcoholic libation. It’s easy to claim that while the 1920’s were certainly “roaring,” they would have truly been the Golden Age, if not for the Prohibition.

In 1929 the stock market crashes due to an unstable economy, over speculation and Government policies. Many people think that the stock crash was to blame for the Great Depression but that is not correct. Both the crash and depression were the result of problems with the economy that were still underneath society 's minds. The depression affected people in a series of ways: poverty is spreading causing farm distress, unemployment, health, family stresses and unfortunately, discrimination increases. America tended to blame Hoover for the depression and all the problems. When the 1932 election came people weren’t very fond of Hoover, but Roosevelt on the other hand introduced Happy Days and everyone loved that idea.

According to the book Security policies and procedures: Principles and practices states, “On November 11, 1999, the Glass-Steagall Act was repealed and the Gramm-Leach-Bliley Act (GLBA) was signed into law by President Bill Clinton. Also known as the Financial Modernization Act of 1999, GLBA effectively repealed the restrictions placed on banks during the six preceding decades, which prevented the merger of banks, stock brokerage companies, and

In doing so, Bruner and Carr are better able to elucidate the ways in which individual actors caused the rapid decline of the American economy in late 1906. In this, Bruner and Carr begin the text by highlighting the influences and magnitude of the major players in the financial services sector in the early twentieth century. Perhaps the most notable of the those mentioned is that of J. Pierpont Morgan, the Wall Street Oligarch for which the contemporarily “too big to fail” financial services entity J.P Morgan-Chase is named. In highlighting these individuals and their over-inflated influence on the financial system, Bruner and Carr subtlety highlight one of the biggest problems facing the financial services sector during this time period—the lack of regulation. To further elucidate this point, the books opening chapter follows the interactions between J.P Morgan and his other colleagues in George F. Baker, president of the First National Bank of New York and James Stillman, president of New York’s National City Bank. Here, the text focuses on the ways in which they inconspicuously competed and colluded with each other to make their fortunes larger and more

The Glass Steagall Act was passed on 1933, which is also known as The Banking Act to tighten regulation on the way banks did their business. This act was written as an emergency measure when about 5,000 banks failed during the Great Depression. Banks mostly failed because of the way they would invest with money. The act prohibits banks from investing money on investments that turn out to be risky. Banks could no longer sell securities or bonds. The act also created Federal Deposit Insurance Corporation (FDIC) to protect the deposits of individuals, which is still used to this date. The FDIC in this era insures your deposits in your bank up to $250,000. This gave the public confidence again to deposit their money in the bank. In 1933

“Shrunken perhaps by the vicissitudes and exigencies of the times, Broadway presented itself admirably throughout the Thirties. It not only managed to preserve the best, but also nurtured and expanded them. At the brink of the new decade, Broadway stood smaller but brighter”

The Glass-Steagall Act was specifically fabricated to prevent the type of close interaction between commercial and investment banks that preceded that imminent crash during the late 1920’s. Commercial banks are banks that accept deposits, secure loans and are insured by the Federal Deposit Insurance Cooperation (FDIC). Investment banks, on the other hand, make riskier speculative bets. They invest in stocks, bonds and engage in a variety of speculative deals with their money. With investment and commercial banks being in such close quarters, the deposits in the commercial banks can potentially be used for speculative activities because of the investment banks’ influence. Glass-Steagall provided separation with three main goals: (1) prohibit commercial banks from owning securities brokerage firms (2) establish a temporary insurance program under the federal reserve (3) prohibit paying interest on commercial checking accounts and put maximum interest rate values on savings accounts. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act came into effect by identifying large financial firms that are intertwined with the rest of the financial systems and increasing regulations on them to try and prevent failure and possible bailouts. Roy C. Smith, author of The Dilemma of bailouts, states, “The legislative process soon became

Overall, the 19th century United States banking system took on this structure and regulations due to politics and wartime decisions. These decisions may have been beneficial in the short term, but they ultimately created a system so exceptionally interconnected that it bred instability and panic throughout the externalities. The regulations placed on Clearinghouses created unintentional incentives for trusts to get around the rules to maximize profitability and play the game with a different set of rules. However, by avoiding the federal regulations, there was no safety net for these trusts to fall back on,

The investment banks, and subsequent stock brokerage firms, was regulated by the Security and Exchange Commission. The banking entities, in this portion of the financial sector, were used to dealing in high risk business that were structured on the business’ equity and debt capital, instead of the commercial banks’ deposits of customers. The activities in this sector of the financial system were underwriting stocks and bonds, insurance markets, the investments in subprime debt markets and mortgages.

September 15, 2008, the bankruptcy of the investment bank Lehman Brothers, and collapse of the world’s largest insurance company AIG, triggered a global financial crisis. This major fallout was catastrophic; it cost the world tens of trillions of dollars, rendered 30 million people unemployed, and doubled the national debt of the United States. Unfortunately for everyone else, this crisis was caused by an out of control industry. Since the 1980’s this industry has been feeding from the rise of increasingly severe crisis’, each one causing more and more damage. The investment banks went public and stock and bond workers on Wall Street were getting rich. In 1982, the Reagan Administration deregulated savings and loan companies allowing them to make risky investments with their depositor’s money. By the end of the decade, hundreds of these loan companies had failed, costing taxpayers $240 billion dollars and their life savings; otherwise known as a “bank heist”. An example of one of these investment loan companies was Ctitigroup (the largest financial services company in the world). There was an ongoing merger in 1998 between Citicorp and Travelers that violated the Glass- Steagall act, a law passed after the Great Depression so there could be no risky banking activity. Alan Greenspan under the Reagan Administration, ignored it and said nothing. In fact, a year later, with the urging

Other industries have seen government deregulation and have blossomed as a result. According to Science Direct, banks in the 1970’s United States had regulations and restrictions on interest rates. And while it stopped the consumer from getting taken advantage of, it also stopped them from benefitting from competition. Today these regulations are no longer in place. The banking industry today is now competitive, allowing for the consumer to pick from multiple

To the contrary, others have opposed the separation of banks, arguing that the Great Depression actually had much to do with small local “unit” banks which constituted the fatal weakness in the banking system (Casserley, Härle, and Macdonald, 2011). This argument, therefore, suggests that the cause of the Great Depression was not the merger of commercial and investment banks but the separation of banks. Accordingly, they have pointed out that the increasing number of small banks as a result of the separation of banks could exacerbate the vulnerability of the financial system (Casserley, Härle, and Macdonald, 2011). The enactment of the Glass-Steagall Act in 1930s seems to provide an indication that the views in support of the separation of banks had prevailed over those in favour of the merger of banks. However, it is submitted that the Glass-Steagall Act had failed to solve the underlying problem of the US financial system. For instance, in 1980s, despite the operation of the Act, a third of small specialist financial institutions failed during the saving and loan (S&L) crisis (Casserley, Härle, and Macdonald, 2011). This indicates that the statutory requirement of bank separation is not the right solution to the underlying problems in the US financial system.

After the clear limits between Investment Banking and Commercial Banking disappeared in the 80s, new sorts of institutions that manage different markets at the same time have appeared.