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Wanted: How to prevent future U.S. financial collapse
Posted By F. Michael Maloof On 08/11/2012 @ 8:51 pm In Front Page,Money,U.S.,World | No Comments
Editor’s Note: The following report is excerpted from Joseph Farah’s G2 Bulletin, the premium online newsletter published by the founder of WND. Subscriptions are $99 a year or, for monthly trials, just $9.95 per month for credit card users, and provide instant access for the complete reports.
WASHINGTON – U.S. and foreign banks may be looking to bring back a U.S. law that could prevent the type of world financial collapse seen in 2008, according to a report in Joseph Farah’s G2 Bulletin.
The law is the Glass-Steagall Act, which separated commercial and investment banking from each other.
The person responsible for its repeal during the Clinton administration was Sandy Weill, who was with Citibank at the time.
In an interview with the German magazine, Der Spiegel, Weill called for the return of the legislation, whose provisions were developed during the financial crisis of the 1930s but then repealed during a period of liberalization in the 1990s during the administration of President Bill Clinton.
The Glass-Steagall Act divided the banking world into two categories of commercial banking to manage customer deposits and investment banking, which gets into the riskier side of banking with the hope of delivering profits.
Weill thinks that if investments don’t work out, it won’t affect the traditional role of banking in handling bank accounts and loans as it did in 2008, at the time of the world financial meltdown.
If the investment banks then find themselves in deep financial straits, Weill said that there should be no rush to bail them out as the United States did at the tail end of the Bush administration and well into the Obama administration.
These investment banks then would be forced to do their own restructuring to make themselves viable again. They would be smaller, no longer the financial giants they are today, a condition which forced the U.S. and some European countries to undertake huge bailouts because they were too big to fail.
If such a strict division between commercial and investment banking once again would be instituted, Weill believes it would be unlikely for a Lehman Brothers to drag down the entire world financial system as it did, causing a cascading effect with similar other investment banks around the world.
In Germany, for example, Deutsche Bank, which handles both commercial and investment transactions, is experiencing such difficulties now and may have to be broken up to pursue new business models in an effort to survive.
In an editorial, Der Spiegel said that with some tweaking of the old legislation, it could be adjusted to meet current financial realities.
“The Glass-Steagall Act was only made possible because a Senate committee had exposed the dumb, risky and at times criminal behavior of banks in the run-up to the Great Depression,” the editorial said. “The outrage paved the way for the law.
“Sometimes history repeats itself. Glass-Steagall served the world well for decades and it would have been better if it had never been repealed.”
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