I attempt to explain this on a fairly regular basis so let me try again to do that:
This is not a ‘sky is falling’ kind of post – but it is a pay attention kind of post. Quite a few people seem to think these problems of 2008-09 are in the past and resolved and done with.
I differ with a lot of my friends over reinitiating something along the lines of Glass-Steagall.
Here is why I disagree that reinitiating something along the lines of Glass-Steagall would be effective:
No rational assessment of any future situation involves the United States government allowing the ‘Too Big To Fail Banks’ to actually fail. The six largest US banks are on the hook for about $168 trillion in derivatives at the moment. For some context the GDP of the entire world is about $70 trillion. If one of these banks failed it would domino into bank failure around the globe simply from being counter-party to these derivatives. That would in all probability lock up the world credit markets and if that were to occur, Boeing couldn’t sell an airplane, Walmart couldn’t make payroll, etc etc etc.
The U.S. government is not voluntarily going down that path.
Hence removing FDIC insurance from investment banks that no one believes the government will ever allow to fail is the very definition of hitting an empty paper bag.
IF these banks were actually allowed to fail then your last concern will be FDIC insurance regardless.
Other Side Quote of the Day: “[Democrats would] much prefer the risk of up-or-down votes in majority rule than the risk of continued total obstruction. That’s the bottom line, no matter who’s in power.” – Sen. Chuck Schumer, D, N.Y. 2013
Quote of the Day: “In the summer of 1959, as in the summer of 1957, I worked as a clerk-typist in the headquarters of the U.S. Public Health Service in Washington. The people I worked for were very nice and I grew to like them. One day, a man had a heart attack at around 5 PM, on the sidewalk outside the Public Health Service. He was taken inside to the nurse’s room, where he was asked if he was a government employee. If he were, he would have been eligible to be taken to a medical facility there. Unfortunately, he was not, so a phone call was made to a local hospital to send an ambulance. By the time this ambulance made its way through miles of Washington rush-hour traffic, the man was dead. He died waiting for a doctor, in a building full of doctors. Nothing so dramatized for me the nature of a bureaucracy and its emphasis on procedures, rather than results.” – Thomas Sowell