The Gramm-Leach-Bliley Act Repealed The Bretton Woods Agreement

Nis 13, 2021   //   Yazar: admin   //   Genel  //  Yorum Yapılmadı

Citigroup led the latest attack on Glass-Steagall, a campaign fueled by $300 million in political contributions and lobbying spending. Proponents of repeal have called on Congress to remove the “expensive” and “unstable” loopholes created by federal authorities and court decisions and to create a final legal framework for unlimited connections between banks, investment firms and insurance companies. In November 1999, Congress passed glba, which struck down Sections 20 and 32 of Glass-Steagall and amended Section 4 of the BHC Act. Senator Phil Gramm said, “We are here to pick up Glass-Steagall because we have learned that the government is not the answer.” President Clinton signed glba enthusiastically and said, “[W]e did the good job of the American people.” [20] While Glass-Steagall allowed links between investment firms and companies other than federal reserve member banks, glass-Steagall distinguishes between what a Federal Reserve member bank could do directly and what a subsidiary could do. While a Federal Reserve member bank has not been able to purchase, sell, amortize or trade security, unless expressly authorized in Section 16, such a bank could be linked to a business as long as that business was not “primarily” involved in such activities. Beginning in 1987, the Federal Reserve Board interpreted this to mean that a member bank could join an investment firm as long as that company was not “primarily” involved in securities activities prohibited from a bank under Section 16. When glba lifted the restrictions on Glass-Steagall`s membership, the Federal Reserve Board had interpreted this “flaw” in these restrictions in order to allow a banking company (Citigroup, owner of Citibank) to acquire one of the world`s largest investment firms (Salomon Smith Barney). [Citation required] Some scholars have argued that the collapse of Bretton Woods and the high inflation rates of the 1970s destroyed Glass-Steagall`s economic foundations. Professor Paul Mahoney presented this position in detail in a recent paper. Professor Mahoney also argues that Glass-Steagall has been undermined by the emergence of financial innovations such as money market investment funds (MMFs), short-term commercial securities, short-term bond repurchase contracts (“rest”), securitization and over-the-counter derivatives.

MMFFs, short-term commercial securities and short-term deposits have enabled investment firms to offer banking-type products to consumers and businesses.

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