Colorado State University Global Campus |
The Great Recession |
The Repeal of Glass-Steagall |
Kevin P. Dugan |
Dear Mr. Speaker,
Right up until October 29, 1929, most investors and speculators, many of whom worked for private financial institutions, were riding a Bull Market, believing that Wall Street would continue to rise and see gains indefinitely. This lead many of these speculators and banks to engage in high risk investments that exposed not only their private holdings to increased risk but also those savings of individual citizens who had deposited their money with these institutions because they believed their money to be safe. On ...view middle of the document...
Even the heads of banks were complicit as they also made much money and therefore forgot their ethical duties not only to investors but also to those whose money they safeguarded.
While the enormity of these bad investments was not yet realized, the effect would chill the world’s economy just at a time when many countries were still rebuilding from WWI. The New York Times states, “The Dow Jones Industrial Average fell almost 23 percent and the market lost between $8 billion and $9 billion in value” (para. 2). With this awesome economic collapse, ripple effects could be felt in nearly every industry. “The Great Depression was a worldwide economic crisis that in the United States was marked by widespread unemployment, near halts in industrial production and construction, and an 89 percent decline in stock prices” (New York Times, 2008, para. 1). This, in turn would lead to widespread foreclosures of homes as well as unemployment that exceeded twenty percent. It certainly was a time of great loss for the citizens of the United States as everything they had worked for their entire lives seemed to dissipate nearly overnight.
The next four years was a time of turmoil and upheaval in the country as everyone seemed to have a theory as to what had precipitated a collapse of this size and overall effect. Government bodies were convened to try and discern the true nature of the collapse as well as its causes and safeguards against a repeat of this catastrophe. It wasn’t until hearings in 1933; however, that financial institutions role in the collapse was truly understood. It was during these hearings that the true nature and depth of the institutional greed and corruption became known to the American public and the reputations of these once stellar banks became tarnished as more of the public began to realize that unfettered greed and lack of regulation had led to the near complete collapse of the U.S. economy.
When it came to the idea of regulations being placed on these banks, Ferdinand Pecora, a former Manhattan assistant district attorney, and head counsel for the government stated, “Bitterly hostile was Wall Street to the enactment of the regulatory legislation. Had there been full disclosure of what was being done in furtherance of these schemes, they could have not survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker’s stoutest allies” (para. 7).
The end result of the Great Depression was the passage of the Banking Act of 1933, otherwise known as the Glass-Steagall Act. Counterpunch (2008) states that Glass-Steagall, “mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation” (para. 2). The new law gave financial institutions one year to decide if they would specialize in investment or commercial banking, with commercial banks being strictly forbidden from underwriting...