<Repealing Glass Steagall had nothing to do with it?<
Let's examine this a bit..
The banks, with the combination of traditional banking services and investment banking under one roof, provided the banks with an additional outlet in turning paper to the securities market.
The Banks largest customer for turning paper, acting only as a Bank, not a securities dealer, was in fact the GSE's. The fact that the GSE's continued to purchase what other wise might have been viewed as "questionable paper" only acted as an accelerator for the Bank's to be able to find additional buyers of the paper via the Securitization arms of their institutions.
Do you regulate the supply side, or the Demand, side of the equation?? Or both.
Liberals scream for the elimination of regulation of Marijuana on the Demand Side and instead want Regulation of the Supply Side. The same thing happened with the Repeal of Glass Steagall. However, The Demand side of the equation was largely deregulated, while the Supply Side was left largely "unchecked" Even when clues about problems within the GSE's started to become apparent. The Bush Administration realized the potential for systemic problems with the situation. The Administration attempt to push Congress to increase Supply Side regulation from the GSE's to the Banks, but the other side of the aisle was too worried about the quickly approaching Congressional Recess.
The fact that the GSE's continued to "pile into low quality paper" only infused the Securities side of the market. After all, the GSE's participation at this level was viewed as a sort of "self-vetting" process to many investors.
If you are looking to invest in a stock, and the dealer shows you that the US Govt. is also purchasing huge quantities of the stock, this provides the investor with a bit reassurance, that the US Govt. has done the homework for them. Some investors perhaps didn't realize that the GSE's were not actually Govt. enterprises, but only Government Sponsored.
You have to have some form of "Checks and Balances".. In this case. Congress was just too busy planning their vacation to care.
PCSTEL |
