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Forum Post: Bank of England recommends Glass Steagall to central bankers

Posted 2 years ago on Sept. 2, 2012, 9:29 p.m. EST by arturo (3169) from Shanghai, Shanghai
This content is user submitted and not an official statement

Speaking at the annual central bankers conference at Jackson Hole, Wyoming, one of the top directors of the Bank of England called for a return to the Glass-Steagall principle of reforming the banking system. The speech was written by Andrew G. Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee, and Vasileios Madouros, Bank of England economist, and delivered by Haldane, well known as an admirer of Glass-Steagall.

His speech, "The Dog and the Frisbee," was unambiguous about the virtues of Glass-Steagall. As the title implies, the speech calls for keeping the regulation of banks as simple as the ability for a dog to catch a Frisbee without knowing any laws of physics. The bulk of the 36-page speech, including graphs is a experimental demonstration, that complex regulatory systems like the Basel agreements, the Dodd-Frank Act, or the Vickers recommendations, are doomed to failure.

After referring to the super-complex Basel accords as a "Tower of Basel" that started at 30 pages and will ultimately run to 60,000 when Basel III is finalized, Haldane said:

"Viewed over an historical sweep, this pattern is even more striking. Contrast the legislative responses in the U.S. to the two largest financial crises of the past century — the Great Depression and the Great Recession. The single most important legislative response to the Great Depression was the Glass-Steagall Act of 1933. Indeed, this may have been the single most influential piece of financial legislation of the 20th century. Yet it ran to a mere 37 pages."

He compares Glass-Steagall to the Dodd-Frank Act of 2010 at 848 pages — "more than 20 Glass-Steagalls," and could comprise 30,000 pages when completed "That is roughly a thousand times larger than its closest legislative cousin, Glass-Steagall." The "Tower of Basel" Europe regulatory reforms that ultimately promise to run to 60,000 pages "would make Dodd-Frank look like a warm-up act."

He then attacks the last 30 years' practice of "pricing risk in the financial system, rather than prohibiting or restricting it," but under current conditions of "an uncertain world. Quantity-based restrictions may be more robust to mis-calibration. Simple, quantity-based restrictions are the equivalent of a regulatory commandment: 'Thou shalt not.' These are likely to be less fallible than: 'Thou shalt,' provided the internal model is correct." That is one reason why Glass-Steagall lasted for 60 years longer than Basel II.

He concludes: "Modern finance is complex, perhaps too complex. Regulation of modern finance is complex, almost certainly too complex. That configuration spells trouble. As you do not fight fire with fire, you do not fight complexity with complexity. Because complexity generates uncertainty, not risk, it requires a regulatory response grounded in simplicity, not complexity. Delivering that would require an about-turn from the regulatory community from the path followed for the better part of the past 50 years. If a once-in-a-lifetime crisis is not able to deliver that change, it is not clear what will. To ask today's regulators to save us from tomorrow's crisis using yesterday's toolbox is to ask a border collie to catch a Frisbee by first applying Newton's Law of Gravity."

The speech bears the disclaimer that "the views are not necessarily those of the BOE or the FPC," but then again they are not necessarily not the views of the BOE.

http://larouchepac.com/node/23802

11 Comments

11 Comments


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[-] 2 points by hchc (3297) from Tampa, FL 2 years ago

Excellent post. And very true. I am glad that Occupy has given rise to things like Glass Steagall. When it started, many didnt know what it was. Now almost all do. The education on the banking cartel is what scares the establishment the most.

I think the problem now lies in that many of the trillions of derivatives on the investment side are tied to the contracts on teh commercial side, so Im not sure if we can even seperate the two now.

Once the whole thing comes unraveled, and it will, will be the chance. Hopefully the people of this country finally rise to the occasion, instead of pandering to D and R scams.

[-] 1 points by arturo (3169) from Shanghai, Shanghai 2 years ago

Thanks for your support. For me, the impetus to revive Glass Steagall is part of a broader movement to return the US to the "American way" or as it is more academically referred to, the "American Economic System":

http://en.wikipedia.org/wiki/American_School_%28economics%29

http://en.wikipedia.org/wiki/American_System_%28economic_plan%29

In addition to financial reform, it also stresses the creation of useful, productive jobs, through the rebuilding of our infrastructure, both public, such as transportation and utilities, as well as private manufacturing.

A big part of reviving the "American System" is regaining the "can do" spirit, which was a big part of what once made America a country that was not only wealthy and powerful, but also beneficent, particularly to developing countries.

It may be difficult to unravel the twisted knot of derivative investments, but I think it is necessary if we ever wish to revive our economy.

[-] 1 points by hchc (3297) from Tampa, FL 2 years ago

I think this overwhelming uncertianty is destroying our spirit.

If we had just let everything collapse in 08, we would be well on our way to better days.

[-] 1 points by gnomunny (6885) from St Louis, MO 2 years ago

Overwhelming uncertainty (for the population anyway) is a vital part of the Shock Doctrine. Keep the people off-balance and on edge.

[-] 1 points by arturo (3169) from Shanghai, Shanghai 2 years ago

Consider this, one of the implications of allowing everything to collapse is hyperinflation. This means that everything gets much more expensive, to the point that you have to spend your entire savings, perhaps to buy lunch tomorrow.

This would wipe out any savings that people have accumulated over many years through hard work. Most common people would be made poor, reducing our chances to recover.

[-] 1 points by hchc (3297) from Tampa, FL 2 years ago

I agree. It would have been a huge mess. But the [roblems are bigger and worse now. Hyper is comng eventually.

I prefer to just yank the bandaid. Telling ourselves that its for a better future for the next generation may help in the mental struggle.

[-] 1 points by arturo (3169) from Shanghai, Shanghai 2 years ago

We could still get out of this through an orderly bankruptcy reorganization. Do you want to lose all your saving? What about your parents or other relatives?

Also, if the system breaks down, various means of life support could break down as well, resulting in mass deaths in America today.

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[-] 1 points by PublicCurrency (1387) 2 years ago

We should copy this post into an email message for our so-called representatives in D.C.

http://www.house.gov

http://www.senate.gov

and telephone them too . . .

and visit their office when they are in their districts . . .

come on people we've got to get together . . .

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[-] 1 points by PublicCurrency (1387) 2 years ago

Absolutely, they fear voter wrath . . .

I sign alot of petitions and I write e-mail messages to my so-called representatives and telephone them, too. It really does make a huge difference. They think that for every person that contacts them - many others are in agreement.

No one person can do everything but everyone can do something . . .