The Glass-Steagall Act

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The repeal of the Glass-Steagall Act of 1933 and its impact to the current financial crisis Embry-Riddle Aeronautical Institute Worldwide Campus ECON310 Abstract The Glass-Steagall Act of 1933 was passed in response the Great Depression. Its purpose was to prevent commercial banks to use money that did not belong to them to engage in risky financial transactions and investments. For almost eighty years the U.S. economy steadily grew but the in 1999 the Glass-Steagall Act was repealed and in less than ten years U.S. Banks again repeated many of the same mistakes that occurred before the Great Depression. Since then the U.S. Government has institutied new regulations that are aimed at preventing what happened in 2007 from repeating…show more content…
While there was no single cause of the Great Depression, the sentiment in most of the country was that Wall Street was to blame and regulation needed to be in place to prevent it from happening again. Senator Carter Glass was known as the Father of the Federal Reserve System and was instrumental in getting it signed into law. Senator Glass, who had been Woodrow Wilson’s Treasury Secretary, issued a warning when he left office that banks should not being engaging in financial speculation but the Coolidge and Hoover administrations instituted their own policies. In 1932 he was so bothered by the policies of Herbert Hoover and his Treasury Secretary, tycoon Andrew Mellon that he went on national radio openly criticizing…show more content…
Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses. 4. Depository institutions are supposed to be managed to limit risk. Their managers, thus, may not be conditioned to operate prudently in more speculative securities businesses... The case against preserving the Glass-Steagall Act: 1. Depository institutions will now operate in "deregulated" financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated and to foreign financial institutions operating without much restriction from the Act. 2. Conflicts of interest can be prevented by enforcing legislation against them and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms. 3. The securities activities that depository institutions are seeking are both low-risk, by their very nature, and would reduce the total risk of organizations offering them, by

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