Comment by byrneseyeview | Hacker News Reader

Comment by byrneseyeview | Hacker News Reader

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What was the point of Glass-Steagall? I've heard justifications about banks underwriting a bond and then having the commercial bank buy it, but these justifications never agree on who is defrauding whom. It is very easy for an investment bank and a commercial bank to make that kind of deal even if they don't share a corporate parent ("Oh, you want in on the next big IPO? Well, let me tell you how to get to the top of the list! I just need one little favor...").

Actually, all of the justifications I've heard seem to imply that Glass-Steagall was necessary to criminalize things like fraud and undisclosed conflicts of interest, which I thought were already illegal.

Glass-Steagall was enacted to avoid 'runs' on banks when speculation was rampant, which was the cause of the great depression in 29'. It separated consumer funds from investors to avoid all out panics, and its wby the FDIC has that $100,000 'insurance' on your commercial bank account.

Frauds and undisclosed conflict of interest still occur, but that is a matter for the SEC, which oversees investments.

I'm sorry, but that doesn't actually make any sense at all. Why would forcing a bank to focus on either investment banking or commercial banking, but not both, avoid runs on the bank? Bear Stearns was an investment bank; it faced a run on the bank. Indymac was a commercial bank; it faced a run on the bank. So far, it looks like the banks that were exclusively one or the other have faced runs, but I don't know of any bank active in direct lending and capital markets (and merger advisory and such) that faced a run on the bank.

Frauds and undisclosed conflict of interest still occur, but that is a matter for the SEC, which oversees investments.

This tends to reinforce my "It was already illegal, so making it illegal again is at best a duplication of effort, and at worst a way to further restrict those of us who aren't criminals," point.

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