On November 4, 1999, Congress passed sweeping legislation that will dramatically reshape the financial services industry by removing barriers between banks, insurance companies, and investment firms which have existed since the Great Depression. President Clinton is expected to sign this historic legislation.
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Eliminates many Federal and State legal barriers to affiliations among banks and securities firms, insurance companies, and other financial service providers, including provisions of the Bank Holding Company Act of 1956 and Section 20 of the Banking Act of 1933 (commonly referred to as the "Glass-Steagall Act"). Full affiliation can now occur between the entities.
_________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
Well, tcope back in the day banks couldn't sell insurance, insurance companies couldn't be bankers and investment firms weren't bankers and insurers.
That all changed with the Financial Services Modernization Act of 1999 and to the detriment of the consumer. The financial problems of today didn't start yesterday. They started years ago and as a direct result this legislation.
The legislators in 1999 forgot all the reasons why the Banking Act of 1933 was passed in the first place. The Glass-Steagall Act prohibited commercial banks from owning brokerages and banks were prohibited from selling insurance.
The three (3) financial disciplines of banking, insurance and investments can't be mixed together without the results we are seeing. It's best for the consumer that those industries compete separately for the consumers investment dollars rather than having one firm be able to control all three areas.
What that causes is the bank/insurance/investment firm to be able to move the bank CD to an annuity, then roll the annuity into some investment product and then back to the bank CD all for the express purpose of generating so called business within the same firm and earning a transaction fee in the process for doing nothing more than taking a dollar and changing it into 4 quarters then changing the 4 quarters into 10 dimes, then take the 10 dimes and change it back to a dollar.
That type of financial game will always implode eventually and that is the Wall Street game. _________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
I have a TOTALLY different opinion as to why we are in the shape we are in and begins with greed and ends with oil. _________________ Have you been helped by a poster? Do you want to show your appreciation? YOU CAN !! Just simply click on the donate button and send them some coin!
Lori nails it with the phrase that pays!
...begins with greed...
But that's generic and tcope wants specifics.
I wrote above:
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The three (3) financial disciplines of banking, insurance and investments can't be mixed together without the results we are seeing.
Why you asked?
Because the so called "financial advisor" at the bank can set up your home equity loan because he sold you on the idea that your home equity was a dead asset and you'll make way more money than the interest on the loan by investing the money in stocks, bonds or mutual funds that he sells you with the proceeds from the loan.
That type of financial voodoo is what lead to the great depression.
What happens when the market doesn't perform and the loan was based on an inflated value? The former homeowner can't pay the debt service, they now owe more money on their home than what its worth, the bank loan doesn't get paid and then the market collapses.
Bank of America buying Merril-Lynch is not a good thing. That would have been a totally illegal transaction under the Glass-Steagall Act that prohibited commercial banks from owning brokerages and banks were prohibited from selling insurance.
Butt, don't worry, Uncle Sam will simply put the printing presses in high gear and continue to cash worthless checks.
_________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
Actually it was done well before 1999 (Gramm-Leach-Biliy Act), it was done in the 80s.
So a financial organization can now own an insurance company... this is a bad thing? Their finances and personnel are required to be separate, thereby maintaining separate companies. The same regulations governing the procedures of each company still remain in place.
I guess is you toss out _everything_ else, like the government turning a blind eye to the mortgage fiance industry and allowing anyone who wants a home to have one, price of oil, and instability in the middle east (see oil prices) I guess you could be correct.
Do I think you are partially correct? Yes. But it's certainly not the big picture.
The Gramm-Leach-Bliley Act and the Financial Services Modernization Act of 1999 are one and the same thing and that legislation was signed into law by President Clinton on November 12, 1999.
Economist Robert Kuttner (among others) has criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[8] Economists Robert Ekelund and Mark Thornton have made similar criticisms, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".
_________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
I don't completly disagee and I think your point is valid. That is, I'd say the goverment thought everyone was entitled to own a home and looked the other way when people were qualifying. They also made it easier for companies to give loans by allowing banks and the like to back insurance companies. But they are still seperate companies. Look at AIG... their insurance companies are doing just fine and they are a great carrier. It's their banking services, namely their subprime mortgage company that is submarining. But, while seperate, they are all joined at the hip. But is the collapes of the subprime mortgage companies because/cause by Gramm-Leach-Biliy Act? At best, only indirectly.
But I'm not denying that the administrations (prior and even current) caused this situation.
Hi, though I don't entirely agree with your explanation, Gary, but its one of the reasons that has contributed to this financial crisis. The collaborations between the banks and the insurance companies were to facilitate the business of insurance/banking.
Rather I'll assign the recent crisis to the easy availability of loans in the market. Banks to meet their business targets and generate more revenue had relaxed the conditions of forwarding loans to a great extent. This in turn has escalated flow of money in the market pushing the inflation rate upward.
Its hard to identify single most important reason for this crisis. IMO many factors have contributed towards it. And I agree with Gary, that it hasn't happened overnight rather the ground was prepared long ago.
The main reason remained the non-availability of enough fund to address the crisis. The booming loan market has encouraged the banks to maintain lower cash-reserve-ratio to meet the client's demands. Also the banks hadn't maintained, or rather say hadn't developed enough financial reserve, to cater to the huge claim requirements from the clients.
What is never reported by the news media or the Poli-Tic bass towards is what did these homeowners do with their 125% loan to value home equity loans?
Let me quote myself from above to make my point as to why banks, investment firms and insurance companies don't mix well together for the consumer.
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Because the so called "financial advisor" at the bank can set up your home equity loan because he sold you on the idea that your home equity was a dead asset and you'll make way more money than the interest on the loan by investing the money in stocks, bonds or mutual funds that he sells you with the proceeds from the loan.
If the bank can you loan you money that enhances their balance sheet. If the bank owns the investment firm the same misguided so called "financial advisor" who sold you on the idea of borrowing your home equity to buy stocks and mutual funds controls the entire sales process from start.... to crash and burn finish.
This type of voodoo financial advice has been going on for years.
There are reputable insurance firms out there, who for years have made it abundantly clear to their sales force, they will not accept applications for annuities or single premium life insurance where the source of the funds is borrowed money.
Do you think for one moment the Certified Clueless Clown registered representatives at the bank care whether or not your "investment funds" are actually borrowed money from an inflated home value?
That's how they are are trained to "create" business where there isn't any.
Take the safe dollar of home equity, change it to a home loan, change the home loan to at risk stocks, mutual funds and the infamous bloated pig with lipstick variable annuities.
This has been going on for years.
Banks, Investment Firms and Insurance Companies DO NOT mix.
In my humble opinion. _________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
All of that happened, happens, and will happen regardless if it's the same company or different companies.
The problem was the attitude of the government. They looked the other way when people were qualified for a home that they could not afford. Part of this was the Gramm-Leach-Biliy Act but it was much larger then that.
Everyone should _not_ be able to own a home. That's been proven now.
WHO needs a 125% mortgage? who? _________________ Have you been helped by a poster? Do you want to show your appreciation? YOU CAN !! Just simply click on the donate button and send them some coin!
I'd say it the other way... if you need a 125% mortgage, you don't need a mortgage.
Agreed...works both ways...but seriously...what would make someone think that automatcially being 25% upside down is a good idea? or a car? apparently you can do that as well...I just don't get it....I understand the horrific greed involved in the lenders...well I don't understand it I see that a motivator on their part...sick or not....gut what does a person say to themselves that makes that make sense to them? _________________ Have you been helped by a poster? Do you want to show your appreciation? YOU CAN !! Just simply click on the donate button and send them some coin!
