Deregulation and its impact on global finance

Glass Steagall

"Bring back the Glass-Steagall Act of 1933 which led to half a century, free of financial crises" (Denning, S. July 25, 2012. PP. 1). Articulating this position was not a democratic senator looing to harness in the power and influence of the Wall Street money center banks, but rather the architect in the late 1990's of the global mega financial institution; Mr. Sandy Weill former CEO of Citigroup. Weill is a pivotal figure in the timeline of Glass- Steagall's repeal in 1999 via the Financial Services Modernization Act, and the legislation's role in sowing the seeds of the global financial crisis of 2007-2009. Weill's July 2012 statement regarding Glass- Steagall demonstrates the enormous impact which Wall Street exerted over the economic landscape throughout the last two decades, and the importance of a strong and reasoned regulatory infrastructure to oversee its activities.

Glass- Steagall

Following the stock market crash of 1929 and the four subsequent years of the Great Depression, America's financial system had deteriorated with the banking system in tatters, savers ruined, and credit and lending brought to a standstill. As part of the ameliorative effort to bring soundness and solvency to the system, the FDR Administration promoted multiple fixes to the regulatory regime: FDIC, national banking holiday, Reconstruction Finance Corporation, and the Securities and Exchange Commission. Yet, perhaps no piece of legislation was more critical to the nation's restoration of the embattled financial system than the Glass-Steagall Act. "In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduced the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds" (PBS.org. N.D. PP. 1). In the simplest context, Glass- Steagall erected a firewall between commercial and consumer banking and investment banking. "The law banned commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage)" (PBS.org. N.D. PP. 1). The legislation was a direct response to the late 1920's Wall Street binge years in which "financial mismanagement and elite corruption ruined banks and destroyed public faith in American finance" (Departments. Washington.edu. N.D. PP. 1).

Financial Services Modernization Act

The repeal of Glass-Steagall in 1999 was not a one- time event; in reality the law had been chipped away at for decades prior. Decisions regarding product and service offerings for financial institutions (checking and interest bearing accounts), bank-holding company statutes, and financial institution underwriting guidelines all eroded the fundamental basis of Glass- Steagall as a protective barrier against money center financial influence.

Enter in Sandy Weill in 1998-1999 and the final dagger to the heart of Glass-Steagall is delivered.

On April 6, 1998, Weill and Reed announce a $70 billion stock swap merging

Travelers (which owned the investment house Salomon Smith Barney) and Citicorp (the parent of Citibank), to create Citigroup Inc., the world's largest financial services company, in what was the biggest corporate merger in history. (PBS.org. N.D. PP. 1)