By Craig Wilson
This post Yellen’s Dangerous Glass-Steagall Repression appeared first on Daily Reckoning.
The threat from too big to fail banks has now elevated to the point that ignoring a modern Glass-Steagall Act is too dangerous to repress any longer. As massive Wall Street banks continue to inflate in size, the bipartisan negligence guided by the U.S central bank, has allowed the global economy, markets and businesses to be put at risk.
Last week the Federal Reserve under leadership of Chair, Janet Yellen raised interest rates by a .25% percentage.
While speaking in a rare but insightful Q&A session on the state of the economy after the hike, Yellen was asked by a reporter about too big to fail policy and what it meant for the economy and the Federal Reserve going forward?
From the FOMC Press Conference on March 15, 2017:
Reporter: “The administration recently reiterated its support for reinstatement of Glass-Steagall. Treasury Secretary Mnuchin has called for a 21st Century Glass-Steagall. Keeping in mind that there’s no specifics on this proposal, is the fundamental idea of separating commercial banking from investment banking a fruitful line of inquiry. Is this the right path to be pursuing?”
And then the Fed Chair responded:
Yellen: “So, I’ve not seen any concrete proposals along this line. I don’t really know what a 21st Century Glass-Steagall would look like. I think my reading on the financial crisis is that wasn’t the major source of the financial crisis, in fact many of the problems emanated from firms that were investment banking units. To me, an important reform in the aftermath of the crisis was to make sure that investment banking activities that were a core part of the shadow banking system where leverage had built, that those were appropriately capitalized, had appropriate liquidity and their management was strengthened and that’s what we have tried to do. But obviously we would look at any proposals that are put forward. I’m not aware of anything concrete to react to.”
While that may have not been a surprising response, what’s more important is what the head of the U.S central bank did not say.
Chair Yellen neglected to say that through her guidance, or by reference to any of her esteemed colleagues, that the Fed had investigated what could prohibit the Wall Street fiasco experienced in 2008.
She offered no highlights of actual research, data and analysis to back up her “reading” beyond a brief opinion with nothing “concrete to react to.”
There was absolutely no citation of the countless books from strong financial analysts (Nomi Prins, Danielle DiMartino Booth, Anat Admati to name a few).
Janet Yellen completely neglected to highlight that the problems stemming from too big to fail risks have now eclipsed in size and that there are indeed proposals that exist today.
Modern Glass-Steagall Act proposals that would reduce the massive concentration of risky assets in the banks that the Federal Reserve bailed out.
Why risk admitting there is a problem if it would require admitting there is one?
As former Goldman Sachs …read more
Source:: Daily Reckoning feed
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