"The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that 'three outside checks on corporate misbehavior had emerged since 1933:
- a very effective" SEC;
- knowledgeable investors,
- and "very sophisticated" rating agencies."
www.freedom4um.com/cgi-bin/readart.cgi?ArtNum=74200 Glass-Steagall Repeal and Consequences
It probably could have been argued that a relaxing of the Glass-Stegall Act would have allowed banks to engage in riskier investments giving them greater profits. Instead of doing so, Sandy Weil and old Theobald lobbied for its demise after Greenspin blessed the then "illegal" union between Citibank and Travellers Insurance. If Glass-Steagall had not been repealed by Congress, the union would have been illegal. Wall Street and the US embarked on a grand experiment of the market being able to regulate itself.
Instead, they threw a party and the dollars flowed. Prior to the repeal of Glass-Steagall, Greenspin had already dismantled "section 20" of it opening the door for banks to venture into riskier investments. Greenspin's other comments about keeping Fed Rates low (January 2004) set the stage for financial markets to look for new places of investment. The US mortgage market, given its history, was considered one of the safest places to invest after Treasury Bills. Tons of mortgages to be written by whoever in a market that was supposedly self-regualated, rating agencies that guaranteed the security of the investments, and the perfect Wall Street storm grew after the warning signs of Keystone and Superior.
For once the president was correct in his claim that Wall Sreet was enjoying a headach from its own drunkness in its attempts to maximize profits. What Theobald had claimed in his statement went by the wayside in order to maximize profits. Realizing how bad Wall Street was in regualting itself was a bad day. Realizing that they left the bar tab at the table for taxpayers to pick up was another bad day. Turning inward and blaming the government agencies for non-regulation after their claiming they could regulate themselves is another bad day and totally disingenuous on their part.
More bad days to come.
