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Too big to fail is OK after all? June 12, 2009
BE STREET SMART
Sy Smith
It's too big to fail is OK after all? June 12, 2009.
Government officials, regulators, and Congress We were told this was already known that one of the largest contributors to the financial crisis is that mergers and acquisitions in the wild and compulsive years 1990, some important financial companies, it had become "too big to fail" as closely related to each other to fail. Had to be rescued or the collapse of one or two could collapse the financial system as a whole.
Of course, it was not say is that they, government officials, regulators, and Congress has made the greatest efforts when in 1999 has been repealed Glass-Steagall Act of 1933.
Investigations after the stock market crash of 1929 has revealed widespread conflicts of interest and fraud in the activities of many banks that have joined to participate in investment banking and brokerage. In 1933, a large part of commercial banks collapsed, and the Great Depression was underway.
As one of several actions to help prevent to reproduce the Glass-Steagall Act was passed, which divides commercial banking, investment banking and brokerage business, creating significant barriers them. Savings banks may receive deposits from the public and mortgages. Commercial banks can accept deposits of enterprises and commercial loans. Investment banks could raise capital for companies by taking them public, organize mergers and acquisitions, etc. etc. Houses brokerage could be a market for the shares and engaged in trade and investment.
It worked quite well for 70.
The strong economy of banks in 1990 of all kinds, and brokerage firms, has become more important in their own areas of mergers and acquisitions of competitors, the largest occupying the smallest, which was very dangerous in the concentration of financial power in the hands of fewer but taller and wider.
commercial banks have started then look over the gates and saw the enormous profits made by investment banks and brokerage firms in the market for high values of the 1990s. Investment banks and brokerage firms have looked up and been attracted by the prospect that he could see the side of the bank, especially in residential mortgages.
And spending huge amounts of money lobbying regulators and Congress ordered that the walls collapse, when Congress repealed the portion of the barrier of Glass-Steagall Act in November 1999.
That opened the door to financial firms to enter other companies (as was the situation that the 1929 crash), and plunged head first into it. Commercial banks created or acquired brokerage values, set up investment funds and administration services money. Brokerage firms began offering banking services and mortgages. Commercial banks, investment banks and brokerage firms all immersed in derivatives activity, particularly excited by the potential benefits of the packaging and marketing of mortgage loans to institutional investors, including hedge funds made their own to invest.
Well, we know what happened when he collapsed the year last. It was very close to repeating the collapse of the banking system in 1933 and the Great Depression.
Thus, Congress and the regulations say – Oops! – We will investigate how it happened, to be awarded, and I can promise you that the guarantee will not happen not.
We have not heard of any re-install of the Glass-Steagall barriers.
However, we hear promises about how including the financial industry is strictly regulated and controlled by what is "too big to break" things never happen again.
However, as part of efforts to rescue panicked weekend several meetings between regulators and major financial companies, Bank of America are encouraged to buy ailing Countrywide Financial (the second largest provider of mortgages in the country). Months by Bank of America has been encouraged, perhaps even forced to buy Merrill Lynch. Wells Fargo is encouraged to buy ailing Wachovia Bank. JP Morgan was assisted in the purchase of Washington Mutual. The list is long.
The too big to fail have become even greater as part of the solution?
This week it was announced BlackRock, the largest management firm money quarter worldwide, with 1.3 trillion dollars in assets under management by investors, to acquire Barclays Global Investors, the largest management firm money in the world, bank problems British Barclays.
The agreement more than doubles the size of BlackRock, which not only makes the world among the firms managing money (in U.S. $ 2.7 trillion under management), but double the second (State Street Global Advisors).
Analysts on Wall Street does not seem possible to offer enough praise for BlackRock is one of the few asset managers have remained relatively stable during the declining market and the acquisition provide the capital necessary to Barclays Bank.
It is fine for now. But all major financial institutions have been strong and stable in late 1990 and early 2000 also, when they were allowed to perform the many acquisitions that have made big too big to fail.
Supply is supply and BlackRock, the merger of two of the largest management companies money in the world, not something that would had to comply with the monitoring of the new financial sector to solve the big to fail as the dangers of the past? Is this the vision of 2.7 trillion dollars in assets are managed investors a company is not the Congress and regulators a little nervous?
Just what are the reforms Monitoring and assured us prevent the financial sector to reduce the devastation of the nation back to an unexpected moment, but time is inevitable problems on the road?
It seems that as always the same for me.
Sy Smith publishes the financial website target = "_blank" title = "www.streetsmartreport.com"> www.StreetSmartReport.com and one day open market in the blog title = "www.SyHardingblog.com> www.syhardingblog.com.
About the Author
Sy Harding is CEO of Asset Management Research Corp., author of 1999’s Riding the Bear and 2007’s Beat the Market the Easy Way, editor of www.StreetSmartReport.com, and www.SyHardingblog.com.
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