The Glass-Steagall Act: A History of Thought

Me in 1985: The Glass-Steagall Act should be repealed.

Me in 1989: I’m not so sure about repealing the Glass-Steagall Act.  Repeal would, in effect, extend the protection of deposit insurance to investment banks and other risky entities.  Moral hazard is a real problem.

Me in 1996: It doesn’t seem to matter that much that they haven’t repealed Glass-Steagall.  The Fed is relaxing restrictions on banks in any case.

Me in 1999: What?  Did they repeal Glass-Steagall?  I wasn’t paying attention.

Me in September 13, 2008: Whew!  I’m sure glad they repealed the Glass-Steagall Act.  My 1989 worries were not crazy but I did not see that counterparty risk would spread the safety net to risky entities in any case, with or without explicit merger.

Me next week: How are we going to stop all these consolidated financial entities from taking advantage of deposit insurance and other public sector guarantees?


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