[FoRK] Scary study on how lack of IPOs is harming US economy

Ken Ganshirt @ Yahoo ken_ganshirt at yahoo.ca
Tue Nov 10 11:04:03 PST 2009


--- On Tue, 11/10/09, Jeff Bone <jbone at place.org> wrote:

> 
> Bill writes:
> 
> >> And how exactly do you think [reinstating Glass-Steagal] is going to up either the IPO or general innovation rate?
> > 
> > Obviously, it will not. In retrospect, should have
> kept my off-topic comment to myself. Sorry...
> 
> Question probably came across as a bit smack-downish,
> wasn't intended to.  Regardless of topicality, I really
> was curious where you were going with this.  I don't
> see *any* benefit to Glass-Steagal, but maybe I'm just not
> getting it.  What benefits do you see of any kind?
> 

I'm not American so I had to go take a quick look. Neither of you specified so I'm going to assume you are refering to the second Glass-Steagal act of 1933, not the first one in 1932. If so, the arguments as written in 1987 in favour of keeping the act intact were as follows:

[Thanks to Wikipedia] 

" 1. Conflicts of interest characterize the granting of credit — lending — and the use of credit — investing — by the same entity, which led to abuses that originally produced the Act.

" 2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

" 3. 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. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s)."

That all makes sense to me. Yes, I know any fool can quote Wikipedia but I do have something to add to the conversation. In Canada we continue to have regulations similar to Glass-Steagal (1933). After the recent global financial meltdown and how well our banking system held up through it, there will be even less appetite (if there ever was one in Canada) to weaken the regulations, never mind repeal them completely.

According to Wikipedia, China has similar regulations in place seperating depository institutions from speculatory institutions and also believes they benefited from them in the recent financial fiasco.

Clearly I'm sympathetic to the view that something like your Glass-Steagal 1933 is a Good Thing.

        ...ken...


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