In 2010, a new decade began with many financial challenges. In 1999, the Glass-Steagall Act of 1933 was repealed opening the door for commercial and consumer banking to join forces in a way not seen since before the Great Depression. Following the Great Crash of 1929, one in every five banks in America failed. Many people, especially politicians, saw the market speculation by banks during the 1920s as a cause of the crash.
In 1933, Senator Carter Glass and Congressman Henry Steagall (who was from Alabama) introduced the historic legislation that bears their names. This legislation sought to limit the conflicts of interest created when banks were permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks and benefits to the banks, rather than their individual investors.
The Glass-Steagall Act banned commercial banks from underwriting securities, forcing banks to choose between being simple lenders or underwriters (brokerage). The Act also established the Federal Deposit Insurance Corporation, insuring bank deposits, and strengthened the Federal Reserve’s control over credit. In the Nation, Robert Sheer recently commented that:
The reversal of Glass-Steagall unleashed the robber barons, as was freely conceded by Goldman CEO Blankfein in an interview he gave to the New York Times in June of 2007. “If you take a[n] historical perspective,” Blankfein said, gloating back then about the vast expansion of Goldman Sachs, “we’ve come full circle, because that is exactly what the Rothchilds or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act.”
This “aberration” was the sensible regulation of Wall Street to prevent another Great Depression, which now seems dangerously close at hand. Since Glass-Steagall was repealed in 1999, Goldman Sachs experienced a 265 percent growth in its balance sheet, totaling $1 trillion in 2007.
Without proper oversight over the banks and, more specifically, the housing markets, the newly-created securitized debt market roared to life. Banking became an industry fueled by greed, creating profits from financial instruments that were built on foundations of sand. When the instruments faltered, the result was disaster. Unfortunately, after the bank bailout, taxpayers were left with ruined retirement investments, and the loss of value in what was often their largest asset, their homes.
Hopefully, our country has passed through the worst of this financial crisis. While the federal government attempts to decide how to handle the financial markets going forward, our firm, based on experience and commitment, is expanding our investigations and filing actions on behalf of consumers and investors who were damaged as a result of this intentional and fraudulent behavior. If you need more information please contact Tim Fiedler or Dee Miles at 800-898-2034 or by email at Tim.Fiedler@beasleyallen.com or Dee.Miles@beasleyallen.com.
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