Did the historic events behind the film The Big Short happen under Glass Steagall?
score:4
Ummm..no.
As a bit of background, Glass Steagall was passed in the wake of the Great Depression to prevent commercial banks, or entities affiliated with commercial banks, from speculating in securities. This was viewed as a cause for the financial bubble that kicked off the crash of 1929. Investigations found that banks were doing a lot of underwriting of bad loans, and then pooling them into financial instruments*. Afterwards a bank could be a commercial bank or an investment bank, but not both.
Glass Steagall's "Affiliation provisions" were repealed in 1999 (although to be fair it was being loosely interpreted and worked around as early as the '60's).
The Housing Bubble whose burst was depicted in The Big Short, complete with underwriting of bad home loans and pooling them into financial instruments started in ... 1999. Call it a coincidence if you want.
* - Now normally a bank would of course lose money on a bad loan. However, if it is allowed to turn its own loan into a security, particularly by pooling it with other loans, some of which may be better, then it can leach off of the securities market with this bad loan that is still theoretically worth face value.
If you get in a situation where securities values are going up, and more and more people start noticing that and start demanding more of them, then their price will go up almost no matter what's in them. That's a "bubble." In this situation the demand for securities will keep going up, so the investment side of the bank will be putting an immense amount of pressure on the commercial side to generate more loans for the investment side to pool and sell. Few loanees are going to turn down money from their bank, so nobody has any incentive to make sure the individual loans themselves are repayable (or even legit).
Upvote:1
No.
The whole point of repealing Glass Steagall was to allow financial institutions to engage in the risky (and initially profitable) practices depicted in the Big Short. This, after decades of lobbying by the banks.
It may not be a coincidence that the two sets of events happened over 70 years apart, after everyone who had a personal recollection of Glass Steagall went to "the big trading floor" in the sky. (Today's "old people" like Alan Greenspan and Warren Buffett were young children when Glass-Steagall was passed in 1932.)
I am writing as the author of "A Modern Approach to Graham and Dodd Investing," a (Wiley, 2004) book that warned of the 2008 crash.
Upvote:3
It does depend on what you mean by "under Glass Steagall" as it was only partially in place in 2007-8.
As the wikipedia page for the Glass-Steagall legislation mentions, the Glass-Steagall provisions were partially undone by the Gramm–Leach–Bliley Act also known as the Financial Services Modernization Act of 1999. This Act repealed two of the four Glass-Steagall provisions, of the Banking Act of 1933, which restricted affiliations between banks and securities firms. So at the time in which the film was set, part of the original 1933 legislation was still in effect.
More post
- 📝 Morse code is a ternary human-optimised code, is there a binary, non-machine optimised code?
- 📝 Who is the oldest ruler whose remains can be positively identified?
- 📝 Who presided over the election and swearing in of the first Speaker of the House?
- 📝 Why was Europe so technologically and culturally advanced?
- 📝 Were there any other systems which resemble the complex election procedure for the doge of Venice
- 📝 How did native Americans and European colonists conduct their trades?
- 📝 Was there a European response to the trail of tears?
- 📝 Were there Jewish Cossacks in the 17th century?
- 📝 Where and when did the legend that the Auld Alliance dates back to 809 AD begin?
- 📝 Are there primary sources about Jinnah's vision for Pakistan?
- 📝 Was the interior of Hagia Sophia in Constantinople ever covered with mosaic icons?
- 📝 Why some countries have more than one name?
- 📝 Why did three states delay ratification of US fifth amendment?
- 📝 How did Lenin secure his regime?
- 📝 Why did Spain not participate in World War I?
- 📝 What rank is S. SGT in the Army Air Force during WW2?
- 📝 When did the current 7-day week cycle begin?
- 📝 What is this ancient Egyptian material called "maklalu"?
- 📝 Did Russia declare war on Germany before its invasion of that country on August 7, 1914?
- 📝 Was (Mahanian) "control of the seas" an Athenian goal in the age of the trireme?
- 📝 If the UK received the highest amount of Marshall Aid, why was it broke?
- 📝 Why did Britain not purchase Alaska when Russia had it up for sale?
- 📝 In the Lombard period, could not the Byzantine Empire have occupied Rome?
- 📝 Is there a name for the WPA Art Style?
- 📝 Were the pre-WW1 alliances really created to prevent war?
- 📝 Paradigm change in power: from military to economic in Europe
- 📝 Did any Chinese warlord claim the mantle of the Beiyang government after 1928?
- 📝 Have the officials/leaders of the winning country ever been punished for war crimes?
- 📝 What percent of the population could vote in Venice between 900 and 1200 AD?
- 📝 When did the Ecclesiastical courts in England lose the authority to mete out punishments such as imprisonment and execution?
Source: stackoverflow.com
Search Posts
Related post
- 📝 Did the historic events behind the film The Big Short happen under Glass Steagall?
- 📝 Why did Bayer lose aspirin and heroin trademarks under the 1919 Treaty of Versailles?
- 📝 How much did it cost to attend events at the ancient Roman colosseum?
- 📝 Why did the UK allow India to be a republic rather than a democratic parliament under the British Monarch?
- 📝 Why did the film "The Longest Day" have the "cricket" training scene if the Allies received no intelligence about the hedgerows in Normandy?
- 📝 Why did the French Army melt film during WWI?
- 📝 Why did the Germans fall behind the Americans in the development of the atomic bomb after an initial lead?
- 📝 When did Abu Bakr agree to lower taxes for the Arabs living under the rule of Byzantine and Sassanid Empire?
- 📝 How did the central government of the United States finance itself under the Articles of Confederation?
- 📝 When did the first riots between Hindus and Muslims happen in India?
- 📝 Did the Bar Kokhba revolt happen before or after Jerusalem's name was changed to Aelia?
- 📝 How did the US fall behind in airplane technology from 1909-1917?
- 📝 How/when did the halo shift from being a solid disk behind the head to being a floating ring above the head?
- 📝 What defenses did Lee leave behind when the Army of Northern Virginia left for Gettysburg?
- 📝 Why did the coins of England minted under Richard I and John bear the name of Henry?
- 📝 What alternate north-south supply routes did the Soviet Union have when the Volga and Stalingrad were under attack?
- 📝 During and right after the French Revolution, how did France maintain and operate such a big army all over Europe?
- 📝 How did the helmsman know what he was sailing towards with a big mast in his face?
- 📝 Great Sphinx photo from WW2 shows a big platform under the chin
- 📝 Under primogenture in 12th century France, if the eldest son predeceases his father, did the grandson or an younger son inherit?
- 📝 When did the incident happen when bounty on rats led people to farm rats?
- 📝 Why did the United States under the Articles of Confederation have a hard time getting funding?
- 📝 Did the "I have a dream" speech make a big impact at the time it was spoken?
- 📝 How did Islamic finance under the early Caliphates profit or take loans if charging interest wasn't legal?
- 📝 Under feudal primogeniture, did second+ sons ever eye the land holdings of their father's vassals?
- 📝 What did cataphract units wear under the armour?
- 📝 How did news of important events spread during the English Civil War?
- 📝 When did the first electronic money transfer / digital transaction happen using computers?
- 📝 Did anyone ever try to beat the Great Wall of China by digging secret tunnels under it?
- 📝 Did the Treaty of Guadalupe Hidalgo intend for Mexicans to live in the USA but under Mexican law?