Thursday, 18 June 2009

Too Big To Fail Yet too Big to Bail: Can we get our ACT together?

The theme of this blog is a legal nascent trend. The last eighteen months have witnessed a financial Tsunami of plummeting asset prices, share prices, property prices, currency values, etc. According to many pundits, economists and academics, we are in the eye of the storm of the biggest recession since the 1930’s. Unemployment is a lagging factor and the worst is yet to come in that regard.

Everyone has been finger pointing at all and sundry; politicians, central bankers, banks regulators, media, feckless consumers and over leveraged companies. In addition, as banks have evloved into global entitites, legislation has also been blamed. One piece of legislation which has been getting the blame for the crisis is the unmemorable Gramm Leach Bliley Act (GBLA).

Wikipedia can be unreliable but use the references at the bottom of the page or google scholar to find out more.

It is also known as the vehicle for repealing the Glass Steagall Act. Glass Steagall was enacted following the last depression of the 1930’s and prevented conventional deposit banks from engaging in riskier casino style investment banking.

Have a look at the video of Senator Byron Dorgan’s prophecy back in 1999. It is chilling viewing.

This gave rise to mega banks which were paradoxically too big to fail, yet in the long run will be too big to bail.

The GBLA act ironically saved Goldman Sachs and Morgan Stanley from collapse as it facilitated their conversion to bank holding companies.

Many leading pundits in the media, the BoE and some politicians are now calling for a British Glass Steagall style act.

Rather than conclude with my opinion I will leave you to formulate your own.

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