G20 Summit: "Tough Regulations" Or Just "Business As Usual"?

Source : https://dofollownet.com

Sept. 28, 2009 - At the end of the 2 days G20 summit that was held in Pittsburgh, US president Barack Obama declared that "the world's leading nations have agreed tough new regulations to prevent another global financial crisis".

According to the Financial Stability Board, which coordinates the Group of 20 regulation initiatives, "there has been good progress in strengthening the financial system to apply lessons from the credit crunch". (read FSB report on G20 financial rules progress).

But for some analysts, that's only "smoke and mirrors" to give citizens the illusion that politics are still in control, while the banks keep running "business as usual".

For them, the main reason of the financial crisis is the repealing by the Clinton administration, in 1999, of the Glass-Steagall Act that was preventing commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities.

This act that was one of the pillars of banking law since its passage in 1933 kept commercial banks out of the securities business in order to avoid the situation that led to the 1929 financial crisis, when banks were investing their own assets in securities with consequent risk to commercial and savings deposits, unsound loans were made in order to shore up the price of securities or the financial position of companies in which a bank had invested its own assets, and banks officials were pressing their customers to invest in securities which the bank itself was under pressure to sell.

You know the end of the story.

When the Gramm-Leach-Bliley Act was enacted November 12, 1999, repealing the 1933 Glass-Steagall Act, it allowed commercial banks, investment banks, securities firms and insurance companies to merge into giant "financial services" holdings which are to big to be allowed to fail.

What will prevent them from investing in risky speculative practices when they know that federal government will have no other choice than to run to their rescue to avoid another financial collapse?

All the so-called "tough regulations" proposed by the G20 will only be able to slow down the build-up of the next speculative bubble...but will not lower its impact when it eventually burst.

Liquidities injected in the financial market after the 2000 dot.com bubble allowed the growth of a bigger bubble on real estate and mortgage loans.

The rescue packages (bailouts) intended to save the financial system in 2008 have also injected a massive amount of liquidities in the market. Nobody knows yet what will be the next bubble, but you can be sure that it will grow bigger than the previous one and will cause more damages to the economy when it collapses.

Read »
Created by Keiros 14 weeks 4 hours ago – Made popular 11 weeks 2 days ago
Category: Economy   Tags:
  • Asia
  • Keiros
  • admin


Networked Blogs

Scoops, bookmarking
Join my network