The Glass Steagall Act - 1722 Words

Despite its humble beginnings in 1844 as a simple general store turned financial firm, the Lehman Brothers greed drove their firm into the ground. It seemed as if Lehman Brothers was indestructible. Surviving through the railroad bankruptcies in the 1800’s, the Great Depression of the 1930’s, two world wars, a capital shortage in 1994, and everything in-between, it seemed the firm was built to last. However its inevitable end started in the early 2000’s with the housing boom after the repeal of the Glass-Steagall act. Over the span of two years, 2003 and 2004, Lehman Brothers acquired a total of five mortgage lenders, including the subprime lender BNC and Alt-A loan specialist Aurora Loan. As the housing boom was under way and the firm acquired these large players its Lehman real estate business’s capital market revenues cascaded 56% over the next two years 2004 to 2006. It was â€Å"a faster rate of growth than other businesses in investment banking or asset management.† (Investopedia) Increasing its revenues by 10% from 2005 to 2006 when they securitized $146 billion worth of mortgages. It went from just being a player in the financial industry to the top dog in the matter of a few short years. Consistently reporting the setting of new profit records year after year. In 2007 its net income record was â€Å"$4.2 billion on revenue of $19.3 billion.† (Investopedia) At the same time, in February of 2007, Lehman Brothers stock had hit its record too at $86.18 a share leaving the m withShow MoreRelatedThe Glass Steagall Act Of 19332039 Words   |  9 Pages In 1999 the United States Congress passed the Gramm-Leach-Bliley Financial Services Modernization Act which finished off the repealing process of the Glass-Steagall Act of 1933 (Moffett, Stonehill, Eiteman, 2012, p. 114). The Glass-Steagall Act had imposed barriers within the United States financial sector, where commercial banking entities were separate from investment banks. This meant that commercial banks were able to operate in higher risk activities that were traditionally reserved forRead MoreGlass Steagall Act For Banks And Securities1549 Words   |  7 Pages Glass-Steagall Act for Banks and Securities The banking and securities industries had regulations since the 1930s or earlier. The laws were there to help regulate and give depositors some security. For one reason or another, the law has been changed, updated or appealed. The Banking Act of 1933, known as the Glass–Steagall Act named after the Congressional sponsors: Senator Carter Glass, a former Treasury Secretary and Senator Henry Steagall (Heakal). The Glass-Steagall Act foresaw problemsRead MoreThe Great Depression And The Glass Steagall Act1683 Words   |  7 Pagesoff by American Express in 1994, and the Long Term Capital Management collapse and Russian debt default of 1998.† (Investopedia) But the collapse of the housing market was one obstacle they could not overcome. During the Great Depression the Glass-Steagall Act was enacted in 1933. The legislation prevented commercial and investment banks from competing with each other and protected their balance sheets by having each sector focus on certain transactions. Highly liquid, asset-light portfolios wereRead MoreGlass-Steagall Act / the Sarbanes-Oxley Act / Dodd-Frank Act /1784 Words   |  8 Pages(i) Glass-Steagall Act (1933) Great Depression At the time after the stock market crash (1929), during the Great Depression, most of the people agreed that the main cause for the event was the â€Å"improper banking activity† which was mainly seen as the bank involvement in the stock market investment. Banks were taking high risks in hope for rewards, they were â€Å"accused of being too speculative in the pre-Depression era† (HEAKAL, 2010, pg.1). They were not only investing their assets, but theyRead MoreThe Glass Steagall Act And New Deal Regulation Of The Housing Market1384 Words   |  6 Pagesnot need to intervene or regulate the processes. This led to policies such as the Glass-Steagall Act and New Deal regulation of the housing market to be repealed. This allowed many banks to make risky investments which ultimately resulted in a large amount of loss. The Glass-Steagall Act was a bill which essentially made it so that banks could not be involved in both investment and commercial banking. When this act was r emoved, it allowed banks to make risky investments with their clients’ moneyRead MoreThe Twentieth Century American Banking System1453 Words   |  6 Pagesinspection by regulators. The Glass-Steagall Act was passed back in the 1933 to separate the conflict between commercial banking and securities activities. The main goal was for these two industries to not take place within the same financial institution. In order to protect the depositor’s money, the American people from another financial crisis. Due to the aftermath of the Great Depression, Congress took the upper hand to regulate the banking system. The Glass-Steagall Act was meant to implement trustRead MoreThe Twentieth Century American Banking System1385 Words   |  6 Pagesinspection by regulators. The Glass-Steagall Act was passed back in the 1933 to separate the conflict between commercial banking and securities activities. The main goal was for these two industries to not take place within the same financial institution. In order to protect the depositor’s money, the American people from another financial crisis. Due to the aftermath of the Great Depression Congress took the upper hand to regulate the banking system. The Glass-Steagall Act was meant to implement trustRead MoreGlass Steagall And The Financial Crisis1565 Words   |  7 PagesGlass-Steagall and the Financial Crisis In May 2012 JP Morgan Chase and Co. stated to the public a 2 billion dollar trading loss, although evidence shows that the loss was far greater. A trader out of the London branch of JP Morgan and Chase Co., Bruno Iksil, dubbed â€Å"London Whale,† had been accruing a huge bet on U.S. corporate bonds based on a flawed derivative or algorithm. He was so confident in his bet that he sold his Credit Default Swaps (CDS), based on his hunch, which is similar to insuranceRead MoreThe Failure Of The Economic Collapse Of Flint, Michigan865 Words   |  4 Pagesmetropolitans continue to grow at exponential rates, the collapse of industrial cities such as Flint, Michigan have been a result of the destructive nature of three economic policy initiatives: The North American Free Trade Agreement, the repeal of the Glass-Steagall Act, and welfare reform. In this paper I will examine the ways in which federal economic policies have served as a catalyst to the economic stress that led one of America’s historical industrial cities to be faced with a contaminated water supplyRead MoreThe House of Morgan: an American Banking Dynasty and the Rise of Modern Finance by Ron Chernov957 Words   |  4 Pageswhen the book was written. There were three significant events that shaped the future of the bank and the banking industry in the United States. In the baronial age it was the Panic of 1907. In the diplomatic age it was the passage of the Glass-Steagall act of 1933. In the casino age it was the development of merchant banking and leveraged buyouts that led to the Crash of 1987. J. Pierpont Morgan’s actions during the Panic of 1907 solidified the bank’s reputation and firmly established it as