Did the GrammLeache bill in 1999 really 'deregulate' banks? Is that why Ron Paul voted against it? Loves regs?http://reason.com/blog/show/129593.html\ That followed bailing out hedge funds, if you recall. Ron Paul, rather than seeing it as deregulating saw it as a set up for further bailouts and taxpayer liability for failing entities. He thought the deregulation parts could be written in a one page bill and the rest... | |
Democrat glossary:
Deregulation - the addition of a vast cornucopia of new mandatory controls. see also: Reckless deregulation.
Reckless deregulation - as deregulation (which see) but accompanied by the removal of a single iota of previous regulation.
It merely dissolved the "firewall" between investment banks and consumer banks. After the Great Depression, the FDR Administration in effect said to the investment banks, "If you want to gamble, fine, but you aren't going to do it with peoples' life savings", so they prohibited consumer banks from investing in stocks and other such instruments.
What it did not do is deregulate OTC commodities (default swaps are a huge problem right now). That was done in the 1999 Commodities Modernization Act (again introduced by Phil Gramm), and what it did not do is place capital reserve requirements on investment banks (and the root of the problem was just how highly leveraged these firms were).
As for the setup for future bailouts, that's baked in to the mergers that are underway. We saw from the Lehman bankruptcy (Lehman was leveraged at about 50-1) that the fallout was severe, so the Fed and the Treasury were forced to act to keep the investment banks from folding, but amid all of this there is further consolidation through mergers and acquisitions of both consumer and investment banks, so if they were too big to fail before, well the ones that are left are bigger.
