Reinitiating Glass-Steagall

by | Apr 10, 2017 | Economy, Keith | 0 comments

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.