Colli Real Estate

The loss of the Glass-Steagall Act is the gain of the Community Reinvestment Act

The Gramm-Leach-Bliley Act (GLBA) in 1999, repealed Part of the Glass-Steagall Act of 1933 which prohibits the consolidation of banks with investment houses, while GLBA also increased influence of the Community Reinvestment Act of 1977, which requires banks to make loans to subprime borrowers. Although the drink deadly imposed economic GLBA has not been presentation immediately after its adoption because of the rapid appreciation of housing values and the market shortly after the financial crisis began to undermine the economic foundations of the world in late 2007 caused many experts have begun to focus again on the bill of 1999 as an important catalyst.

The Glass-Steagall Act

Enacted in the wake of the Great Depression, the Glass-Steagall Act created the Federal Deposit Insurance Corporation (FDIC) and established a series of banking sector reforms that the inclusion of a provision prohibiting banks owned by other financial companies. After the Untied States Congress held numerous hearings to investigate on the causes of the market crisis of 1929, it was determined that the mixture of commercial banking and investment in the 1920s generated a high degree of fraud and conflicts of interests in securities operations. 1933 The Congress also prophetically motivated that because of the risks inherent in securities markets, losses of securities could cause problems for the banks capitalization and threaten the integrity of bank deposits. In turn, because the federal government guarantees these deposits, which would be responsible to pay enormous sums if banks were to exhaust the deposit as a result of securities losses.

The law of the Community Reinvestment

The objective of the Community Reinvestment Act of 1977 (CRA) has been to encourage commercial banks to lend in areas of low and moderate income and to prohibit discriminatory refusal of banks to lend in these areas known as "red line". ARC subsequent regulatory changes such as the implementation of a quota system based on funding needs for banks, resulting in 467 billion in CRA loans from lenders to borrowers of low and medium income between 1993 and 1998, according to statistics provided by the Department U.S. Treasury in April 2000. The Treasury Department also said that loans to these borrowers increased by 39% over the same period time. In an article for the New York Post, said economist Stan Liebowitz said that broadening the scope CRA in the 1990s encouraged a loosening of credit standards across the banking industry. Similarly, the Austrian economist Russell Roberts wrote in an essay published in The Wall Street Journal that the ARC encourages affordable housing, by pushing the credit institutions to lend to people who would otherwise be rejected as bad credit risks.

The Gramm-Leach-Bliley

After years lobbying by the banking industry to repeal the Glass-Steagall provisions, which erected a wall between commercial banks and investment in 1999 President Clinton Treasury Secretary Robert Rubin has taken the initiative in urging fellow liberals in Congress to meet with their counterparts in the corridor, possibly passing through the GLBA 90-8 bipartisan vote in the Senate and 362-57 in the House of Representatives. President Clinton signed into law November 12 1999, but does so only after demanding that the GLBA requires M between commercial banks and investment houses are carefully examined by the bodies regulator responsible for the CRA. Accordingly, banks could be acquired, apparently houses lucrative investment without satisfying the requirement of quotas for loans to high risk of the CRA, which has just been added encourage banks to make subprime loans and deepen in the activity of subprime mortgages.

The creation of the first financial supermarket of

Citibank, after the main lobbying force behind the repeal of Glass-Stegall, attempted to combine permanently with the investment of the three houses of Smith Barney Shearson and Primerica for several years. Following the repeal of Glass Steagall in the late 1999, Citibank made the merger immediately under a permanent financial supermarket called Citigroup. Clinton, former Treasury Secretary Robert Rubin was immediately rewarded for his efforts as a key advocate for the repeal of Glass-Steagall, in November 1999 by his appointment on the board of directors of Citigroup, and the Clinton administration left office in December this year. In fact, Forbes magazine said Rubin received more than $ 17 million in compensation and $ 33 million stock options before resigning as chairman of Citigroup now in trouble Financial in January 2009. Not so surprising, given Rubin Marketwatch as one of "10 people most ethical business" shortly after.

Go to the merger of Banca Economic Benefits

As feared by supporters of Glass-Steagall and critics of the CRA Citigroup's losses on securities activities related to the mortgage crisis and high risk of widespread financial distress the result that tens of billions of dollars in federal support. Unfortunately, Citigroup was not alone in the period after 1999, mergers, stock loss and category of aid of government: Wachovia Bank bought two Golden West and AG Edwards, Bank of America buys Merrill Lynch Countrywide, JP Morgan Chase bought Bear Stearns and and the list continues.

When the GLBA removed the protective walls between commercial banks and investment Glass-Steagall, which had previously held firmly in place, there was nothing to prevent collusion DealMakers analysts house investment bank to show positive results for clients to improve their level of collective reference. Banks no longer have to worry about control imposed by security analysts neutral third party, when the level analysts due diligence in its own business is much more favorable. companies Investment in free might mix of debt mortgages normal CRA-prime loans into collateralized debt obligations (CDOs) before selling like mortgage backed securities through a different arm of the same financial institution. The financial supermarket could achieve their required assessments of subprime loans and the CRA sends investors more easily.

Transparency and control of a corporation created to research, negotiate and ultimately the purchase of another company dissolved. Only people with conflicts of interest are allowed to weigh, but why should they when everything is making huge profits in the financial sector before 2008? Hopefully, once the federal government made an infusion of billions of dollars into financial supermarkets such patients can begin to solve the main problem by repealing the GLBA and the reconstruction of walls of glass Steagall.

About the Author

Brian S. Icenhower, BS, JD, CRB, CRS, ABR is an attorney, a real estate broker, an instructor in real estate law at the College of the Sequoias, a California Association of Realtors Director, a real estate litigation expert witnes, a prosecution consultant for district attorney real estate fraud units, and a frequently published author. He may be reached at bicenhower@icenhowerrealestate.com or at http://www.icenhowerrealestate.com.

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