The Instigator
Pro (for)
21 Points
The Contender
Con (against)
0 Points

The USFG should reinstate the Glass- Steagall Act.

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Voting Style: Open Point System: Select Winner
Started: 7/14/2016 Category: Economics
Updated: 2 months ago Status: Post Voting Period
Viewed: 496 times Debate No: 93706
Debate Rounds (5)
Comments (6)
Votes (3)




**Unique Topics Tournament**

Pro will argue that the GSA should be reinstated, CON that it should not.

No forfeits
No kritiks/ semantics
All sources within body of debate
Shared BoP

* Voting is select winner, RFD required with Moderation
R1: Acceptance
2. Individual Arguments
3. Rebuttals
4. Defense/Rebuttals
5. Summaries/Conclusions

The Glass Steagall Act Definition: Is a law that prevented banks from using depositors' funds for risky investments, such as the stock market. It was also known as the Banking Act of 1933 (48 Stat. 162). It gave power to the Federal Reserve to regulate commercial banks. It also prohibited bank sales of securities. It created the Federal Deposit Insurance Corporation (FDIC).

Glass-Steagall separated investment banking from commercial banking. Investment banks organize the initial sales of stocks, called an Initial Public Offering. They facilitate mergers and acquisitions. Many of them operated their own hedge funds. Commercial banks take deposits, manage checking accounts and make loans.


i accept :D
Debate Round No. 1



The Depression

In the 20’s credit and loan banks were booming, allowing individuals to borrow money and take out credit (margin purchaes, paying 10-20% of stock value borrowing 80-90%) to invest in the stock market with the expectation that large gains were to be made. The market shy rocketed 400% from 1923-1928 due mostly to plethora of margin purchases not economics principles; it resulted in very overvalued stock. When companies’ earnings were less than stellar in comparison to stock value, stock holders began to sell which dominoed throughout the system bringing about falling share prices and market crash. On the banking side they were left holding the bag on the credit issues.

People ran to withdraw bank deposits, but banks had insufficient cash (capital) to redeem due to their liabilities in margins credits and loans; collection on these were futile due to the crash. Savers lost their money and many banks went bankrupt. The banks that did survive after the “run” issued few loans that resulted in low investment which further stymied the economy

Glass-Steagall Act 1933

This Banking Act prohibited commercial banks from participating in investment banking and created the FDIC. This was seen to be essential since banking investment activities contributed to the market crash due to too much speculation; banks taking risks with customer’s money. Banks were giving loans to companies then in turn customers were cajoled into investing in the same companies, a conflict of interest. The FDIC’s purpose was to restore public confidence in banks by insuring deposits

Since the 70’s GSA restrictions were slowly whittled away with progressive banking deregulation. Until the final straw when Travelers/ Salomon Smith Barney (investment) and Citicorp/Citibank (commercial) proposed a merge. The government gave its tentative approval. Both banks agreed to abide to GSA, but lobbied banking regulators and government officials for its repeal at a cost of $200 Million in lobbying efforts and $150 Million in political donations. It worked and resulted in the Gramm-Leach-Bliley/Financial Services Modernization Act of 1999 (Citigroup actually wrote the repeal) This permitted the merge and mixing of and investment securities firms, commercial banks, and insurance companies. Together with a very low Fed interest rate of 1% and regulators turning a blind eye to anti-monopoly laws, larger banks swallowed up smaller ones. Big banks dominated the markets. Credit was issued in mass; the credit bubble grew until it burst. This was the beginning to the 2008 taxpayer-financed bail-outs,


With low interest rates and deregulation, banks took a nonchalant attitude toward risks. Banks were dolling out mortgages wily-nilly to those with questionable credit while the housing market climbed. Low interest rates and the egging on of Alan Greenspan to consumers to take advantage of the low rates fueled the frenzy. These mortgages were bundled as low risk securities (bundles of debt) by the big financial houses and backed by Collateralized Debt Obligations, CDOs (derivatives). Due to the lock and key relationship between the banks and Moody’s/Standard & Poor were given a Triple A rating giving the illusion of safely. Low interest rates spurred banks, hedge funds and investors to take bigger risks for higher rates of return. Much was borrowed to purchase more with the expectation that returns would exceed interest on the loans; leverage.

The housing market tanked and a high rate of default on mortgages ensued, which depleted bank capital. The value of the mortgage-back securities and CDO’s went along with it. Banks used these as collateral to offset short term funding and now they were worthless. Banks weren’t lending to each other or to other parties. Credit-default swaps “(in which the seller agrees to compensate the buyer if a third party defaults on a loan)” emphasized the debt. Entities who sold these swaps could not pay out due to their enormity. Banks had too little capital to absorb the losses. AIG, Lehman Brothers and other behemoths were failing. Companies lost confidence, stopped borrowing in an effort to hold onto cash which halted the economy. The market plunged in commodities, energy, and raw materials due to fear of falling demand. US tax payers picked up the losses to the tune of $700 Billion so large banks would not fail; preventing a similar situation with depositors losing their savings (but paid on the back end with the bail out) as they did in 1929 and the halt of business loans that stimulate the economy ,

The Bank’s CEO’s got off Scott free mostly due to the inability to prove criminal intent, so filing specific charges was difficult. Furthermore what the banks did was reckless and irresponsible not illegal due to deregulation

ReinstateGlass-Steagall Act

What reinstatement would accomplish: Reduce risk of losses associated with securities in Commercial Banking. Commercial Banks would be less likely to lose due to securities volatility. It would facilitate depositor confidence in the banking system preventing “runs” in an economic down turn. Although FDIC guarantees deposits to an extent, but as with CDO’s in 2008, if a string of mixed banking conglomerates should fail in the future the FDIC could also fall short.

Since the repeal of GSA banks have gotten too big to fail: The nation’s six largest banks issue more than two-thirds of all credit cards and more than a third of all mortgages. These giants have 5% equity and 95% financed with debt. Their dominance and shear size in mixed banking creates monopolies where competition can’t flourish.

Stake in transactions: Beyond Commercial Banks services, savings deposits, loans and other basics, a mix with investment services promotes banks to encourage high risk activaties upon the typical client who is unknowledgeable of the complexities of the markets. Traditional commercial banks are more customer focused and risk averse while investment entities are high risk takers for quick rewards; greed for the fast buck always supersedes.

Separation offers greater oversight: Separation of commercial andinvestment banks created simplification of oversight. “Commercial banks by minimizing risk and monitoring the soundness of their lending standards. “The aim of the Securities and Exchange Commission, meanwhile, was not so much to safeguard the survival of investment banks, but rather to make sure that they did not defraud investors.” Reinstating ReinstateGlass-Steagall banks could no longer self-regulate. Commercial banks who offer a safely net (FDIC) will be restricted on how much risk can be taken.

Clout: Banks have become so large their ability to influence Washington undermines the democratic process. $350 Million was spent to repeal GSA. Last year over $29 Million was spent in lobbying to negating more restrictive banking regulations Big banks have members sitting on the boards of the Federal Reserve, conflict of interest. When regulations and regulators get too tight, the budget for the Banking Regulatory Agency gets cut due to their influence, weakening oversight Politicians are weak for the campaigns funds this industry offers, lessening their will to push for regulations or increased oversight.

Due to the higher return in securities and mutual funds, financial advisors were steering IRA and 401(k) managers to contain a greater array of these products. When the market went bust, the bailout merely kept affected banking institutions afloat giving them capital against their debts; they didn’t institute loans to stimulate the economy which was the aim. But this did nothing to alleviate losses felt by everyday American retirement accounts. So we lost on both sides, in retirement accounts and bail-out. The lack of regulation that the GSA provided, regulators failed to provide oversight. The complexity of credit based products and risks taken by mixed banking conglomerates placed results of their reckless behavior squarely on US citizens.


Although the 2010 Frank-Dodd Act, and the Financial Stability Oversight Council (FSOC) that was created placed more over-sight and regulation, being slowly being phased in over the course of several years, doesn’t resolve the mixed services banking issue As the bill went through Congress many of its rules failed to pass or were watered down. To exacerbate the issue Frank-Dodd is proving to fail before it is fully enacted. Congress has failed to properly fund the FSOC; no surprise there. Loopholes allow entities such as JPMorgan Chase to hedge their debts against FDIC protected deposits. Large banks are now even bigger. The size of the FDA rulebook is 8,843 pages vs the GSA's 37, making the sorting out process on how to regulate a daunting task to understand, never mind how to apply the rules Credit-rating agencies still have a lock and key relationship skewing how risky products are rated.

As of 2012, Bank of America, Citibank, and JPMorgan Chase are the 3 largest banks worldwide. Together with Wells Fargo they fall within the 6th largest assets of the world and amount to 97 percent of the US’s GDP Even bigger too big to fail and can possibly affect the global economy if one falters creating another cascading effect.

The Glass-Steagall Act should be reinstated.



Glass-steagall was an overreaction to the Great Depression
As a response to the crisis, and more specifically, the mass failure of banks, the glass steagall act was created to completely separate investment banking from commercial banking. However, apart from theoretical arguments, there's no real reason to believe that this would have solved the problem. Commercial banks were indeed being speculative during pre-depression, however, whether or not the public was “duped” into investing in securities by these banks is yet to be proven. In fact, research done by Rajan & Kroszner at the University of Chicago tells us the opposite – that the people did rationally account for possibilities in conflicts of interest. Consequently, the commercial banks would need to remain cautious in their underwriting activities, otherwise they would undergo a loss on the securities. [1] To sum it up, they tested this theory by assessing the performance of securities that were “affiliate-underwritten” (meaning underwritten by commercial banks engaging in investment-banking activity) against those that were underwritten by purely investment banks. Eventually, the conclusion was reached that the issues underwritten defaulted less than that of investment banks'. This would mean that the affiliate-underwritten issues were expected to perform better, and that the banks were not fooling the investors.

Furthermore, glass-steagall would have also prevented acts that helped mitigate the financial crisis of 2008. For example, many banks were on the verge of bankruptcy during after the burst of the massive housing bubble. Specifically, banks like Merrill Lynch and Bear Stearns , who had written down billions in losses, would have quite possibly gone down like the Lehman Brothers, had they not been acquired by the Bank of America and JP Morgan. Additionally, these banks, along with the Lehman brothers that failed previously, were purely investment banks, and their failure was completely unrelated to glass-steagall. If glass-steagall was in effect, Merrill Lynch and Bear Stearns would have undergone bankruptcy, which would have only strengthened the mass panic in the markets, and cause failures of other banks around the U.S. [2, title “Sale to Bank of America”]

In fact, to prevent other bank failures, it is also suggested that said banks of larger size be required to hold minimum levels of equity to cushion the effects of a similar crisis to both the stock market crash and the bursting of the housing bubble. Another study conducted by Hart and Zingales confirms this by suggesting that capital regulation on “too big to fail” banks can prevent bankruptcy of large financial institutions without the need for a massive taxpayer-funded bailout. [3]

Glass Steagall's demise did not cause the 2008 crisis
Here I intend to maintain, while tying to my previous argument that banks were not tricking clients into purchasing low-quality securities, that the GSA's presence would not have stopped the '08 financial crisis, because its cause can be attributed to low-quality securities being sold by banks that are not affected by glass steagall. As I mentioned in my previous argument as well, the most notable bank failures (or near-failures) are Merrill Lynch, Bear Stearns, and the Lehman Brothers. All three of which purely engaged in investment banking, and had ended up writing billions in losses due to poor speculative activity[4, banks mentioned are in list]. The banks that failed had little to do with glass steagall, therefore rendering glass-steagall ineffective in preventing the financial crisis. If blame were to be directed, it could be more effectively diverted to non-affiliated investment banks, and toward public attitudes towards house prices. The investment banks are to blame for the underwriting of lower-quality securities, and the public for assuming that house prices only go up. Additionally, it could also said that the federal reserve should have raised interest rates to ease up on the margin purchasing that investors were engaging in.

Debate Round No. 2



Glass-Steagall was an overreaction to the Great Depression

Your cit #1 conducted an analysis between commercial and investment entities and whether or not there was a duping of the naive investors with regard to purchasing bad securities in order to offset bank losses. The study self admits to a multitude of data gaps. First, in the period studied 1921-29, reliable bond performance data was seriously lacking. Instead they used the age of the bond to tabulate against underwriting actives. It used the timing of bond defaults not totals in making comparisons between commercial and investment banks. This at first glance may seem rational, but later admits data on payments to bond holders when a company defaults were unknown. In reassessing their results for hypothesis for robustness they used a ratio test to correlate data between commercial and investment banks, resulting in a 1% confidence in accuracy, not good. Furthermore when looking at debt, 25% of the data was missing in predicting these bond defaults, so the timing calculation was used to extrapolate by this percentage. Nowhere in the study do they explain how this calculation was done, or account for the rate of failures or bond payments. With all this self admitted lack of data groups, they still jump to the conclusion that naïve investors were not duped into buying bad securities by commercial banks. To make clearer on why their process and data (or lack of) does not hold up under scrutiny; solve this problem: Clyde Investments has 100 apples, 25 are hidden in a box. Paul Commercial has the same. (Using the study’s percentage rates of failures, 77% investment, 53% commercial over 8 yrs studied.) 58 of the investment bank’s 75 seen apples and 40 of the commercial bank’s seen apples rot. In the end, out of the total 100 apples each bank held, provide the number of total apples rotted? How many apples rotted in each unseen box? Using the flawed timing calculation the study only indicates that apples rotted at a faster rate in investment banks; commercial banks were slower in issuing securities to offset debt. And there are two other underlying factors that further discredits the study’s conclusion. Total bond defaults between the two types of banks over the 8 years and percentage of capital held by each to offset losses; at the time there were no capital minimum regulations. With the missing data sets their conclusion that the naive investor was not duped falls flat.

Furthermore, in the 1933 during hearings under congressional investigation for reasons of the 1929 crash, lead by Ferdinand Pecora, prosecutor, evidence was uncovered that fraud with use of customer deposits and a promotion of securities to the public was occurring. Executive Charles Mitchell, of National City Bank, the largest commercial bank in the US, admitted to taking on failed loans and packaging them as securities then selling them to unwitting investors. Short sales, stock manipulation and fraud to the disadvantage of small investors, along with a litany of additional abuses were revealed. Admissions from the mouths of banker’s they had duped investors GSA was not an overreaction.

Glass-Steagall would have also prevented acts that helped mitigate the financial crisis of 2008

The Merrill Lynch purchase by Bank of America hardly can be said to be beneficial or mitigating. With $30 billion worth of CDOs on Merrill Lynch’s balance sheets they were heading for a fall. With Merrill Lynch’s liabilities now on the ledgers of Bank of America it too would have crashed if it weren’t for the $20 billion bailout by our government. This was on top of the already doled out $25 billion from TARP. Our tax dollars pick up the bad investment tab to keep BofA from failing. On top of this, the US bought 90% of BofA’s debt that it inherited from the purchase. Risky investment related activities are prohibited under FDIC regulations, but with a wave of a wand most of these liabilities under BofA were forgiven. Glass-Steagall would have prevented this merger and subsequent bail out. Merrill Lynch should have been allowed to fail or be bought by another investment entity

Bear Stearns and JP Morgan were both investment banks, we agree a moot point as it pertains to Glass-Steagall

Your cit #2 Wikipedia, states the concern was investors were afraid that the contagion could spread to the other surviving investment banks.” not in the markets as a whole nor makes a supposition that failures would be inclusive of commercial banks involved in investment activities; you have extrapolated with false assumptions.

What the repeal of Glass-Steagll enabled is series of bank mergers and acquisitions that allowed large banks to grow into mixed services megabanks, taking more of the market share and posing risk to the financial system. These banks took too much risk and were caught with their pants down when their risk failed. Nobel Laureate economist Joseph Stiglitz stated “Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively…It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money — people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking.”

In relation toCit 3# “A New Capital Regulation for Large Financial Institutions” and reference to Hart and Zingales:Regulatory Capital Requirements were/are already on the books and did not prevent the 2008 financial meltdown In fact, RCRs in commercial banks were circumvented which facilitated the 2008 crash; more on this later.

There’s no explanation by you on how this proposal of larger minimums of equity and how this proposal hinders circumvention of RCRs is more beneficial over reinstating Glass-Steagall.

Glass Steagall's demise did not cause the 2008 crisis

Though some believe that investment houses such as Bear Sterns and Lehman Brothers were the underpinning for the cascade of events of the financial crisis, this is not true. This view fails to see the bigger picture. Investment banks were purchasing mortgages and obtaining lines of credit from large commercial banks. Commercial banks went from giving out prime mortgages to sub-prime due to overzealous optimism of the rising housing market and high demand for mortgage backed securities (MBS) from investment firms; a supply chain of feeding the wolves.

In 2004 the Fed raised short term interest rates which slowed the housing market slightly, but in the same year US Securities and Exchange Commission permitted investment banks to issue more debt; the derived profits were used to purchase more MBSs, further fueling the feeding frenzy; the Fed rate did nothing to curb margin purchases. The demand induced predatory mortgage lending practices with adjustable rate mortgages within the sub-prime sector. Without the ill rated MBS products, investment banks would have not leveraged themselves. It was a vicious circle, (review video R2.) Free from With Glass-Steagll regulations (FDIC insured deposits bared from use to underwrite buy and sell securities, as well as selling these securities to their own customers to back debt) commercial banks moved their liabilities off their balance sheets into the shadow banking sector of money market mutual funds (derivatives) which had little to no regulatory oversight. This allowed commercial banks to bypass regulations regarding minimum capital ratios, increasing their leverage. When the crash occurred they lost. All these activities done by commercial entities would have been prohibited under GSA, ,,,,



Thanks for the arguments. Sorry if my responses seem abit short, I was abit busy yesterday, and only had time today to write a response.

The Depression

As this seems to be more of a run-down of the series of events surrounding the Great Depression, there's not much to argue here. We can agree that what my opponent describes as a 'domino effect' is what brought upon the stock market crash. The question here is whether or not affiliate banks – that is commercial banks engaging in speculative activity, were specifically to blame for underwriting lower-quality securities, which would expand the housing bubble. Voters should keep in mind that the burden of proof is on Pro to prove that this was the case.

Glass-Steagall Act 1933

My opponent cites articles which certainly prove that there were lobbying efforts taking place to repeal Glass-Steagall, however this has little to do with this debate, because it doesn't contribute to a case for glass-steagall since most regulations, useful or not, would be countered by lobbying efforts by banks. To say that these lobbying efforts are grounds for the reinstatement of the legislation just for the sake of opposing the banks is absurd.

My opponent also quickly skims over the fed's low interest rates, which could also be considered a main cause for the crisis. These 1% rates were the main drivers for margin purchasing, which is in the end what caused the destruction of the banks' balance sheets.


My opponents main contention with bank deregulation appears to be the “lock and key relationship” between commercial and investment banking entities, from which triple A ratings were given to low-quality securities that in turn attracted investors who were under the assumption that these ratings were credible. However, little is done by my opponent to provide evidence of this, apart from an article which briefly talks about Moody's/Standard & Poor in a sentence.

However, even with my opponent's explanation of all of this, it's clear that the fed's low interest rate was a more underlying problem during the crisis. This is because, as he explains, investors all became highly leveraged due to money that was essentially free, which eventually backfired when the housing bubble burst.

As I mentioned in my arguments, there exists a “safeguard” against the failure of large financial institutions, which is the Capital Requirements. I acknowledge that my opponent has commented on this, and I will address those comments in the next round. However, Capital Requirements are, in many ways, a cushion against the bursting of asset bubbles like the ones in the stock market crash of 1929, or the housing bubble burst. They are designed to protect the balance sheet of said banks, so that their solvency is not in question during a crisis. A large enough capital requirement would, in theory, sufficiently cushion the effects of an asset bubble burst, to the point where a taxpayer-funded bailout is no longer needed, or is at least, kept to a minimum. This serves as a reasonable alternative to glass-steagall, as far as bank failures and bailouts are concerned.

Reinstate Glass-Steagall

My opponent makes many points here, most of which reiterate the idea that the merging of banks has led to greater fraudulent activity by the banks, and that the reinstatement of the GSA would prevent more economic downturns by restoring confidence in the banking system. However, these points are both insufficiently proven. Economic downturns and banking confidence can also be restored via proper capital regulations which allow banks to sustain themselves in these situations without taxpayer bailouts.

I have also already explained why my opponent's point about lobbying efforts fails to make any real case for the GSA. This alone cannot prove that the GSA is useful, because it is hard to determine which regulations being lobbied against are actually helpful, and which are not, without assessing the actual effects of those regulations.

Debate Round No. 3


The Depression

If you review R2 The Depression, it is labeled background information to describe the purpose of enacting Glass-Steagall in historical context for the readers’ benefit.

“History repeats itself, first as tragedy, second as farce.” Karl Marx. This is certainly the case with the repeal of GSA.

In your contention in R2 you addressed Glass-Steagall being an overreaction to the Depression,“whether or not the public was “duped” into investing in securities by these banks is yet to be proven.” The duping of the public was more than adequately proven to be true as testified by the very bankers who were engaged in the activity; background information that you deemed pertinent in your contention, is now dismissed? Your statement that I prove “that is commercial banks engaging in speculative activity, were specifically to blame for underwriting lower-quality securities, which would expand the housing bubblehas been addressed, as a supply chain of feeding the wolves in R3, but I will reiterate in this round.

*My BoP is not based on low-quality securities or the housing bubble, but the justification behind why Glass-Steagll should be reinstated; do not mislead the readers.

If commercial and investment banks were not so eager to create mortgage back securities via sub-prime mortgages the chain reaction through the banking sector would not have occurred. Had commercial banks been under GSA they would not have been allowed to create MBSs or to purchase CDS; more on this later.

(Review Clout R1). Another wave of a hand disregarding the pressures of banking lobbies and their bloated budgets as it undermines the democratic process turning politicians into puppets for their cause. The financial sector is in the top 10 in spending in lobbying dollars . While in office the lobbies make lucrative job offers to elected officials for when they leave office. In comparison to the salary of an elected official, often millions in future salary is promised. To say that our elected officials are not influenced by future employment prospects while he/she conducts the business of government is naïve. There is a direct connect between actions of elected officials that ingratiate the aims of their future employers.;

“The Financial Crisis Inquiry Commission Report,” 2011 stated:

It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than 1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.”;

To say that these lobbying efforts are grounds for the reinstatement of the legislation just for the sake of opposing the banks is absurd.

I have not stated such a premise. The point made that is GSA’s repeal was due to lobby efforts and its reinstatement is being thwarted by banking lobby interest; purchase of influence. To make an assumption lobby influence alone is reason to reinstate GSA is dumb. Barring risky investment behaviors on the commercial side of banking to protect deposits and not have the government bail banks out on the backs of citizen’s taxes is the bulk of the impetus to reinstate GSA.

John Reed, former CitiBank CEO, who spent money to lobby against GSA and helped draft the “Gramm–Leach–Bliley Act/Financial Services Modernization Act of 1999,” admitted the GSA’s repeal was a bad move in hindsight.

On the election front there has been much to do about reinstating GSA, Bernie Sanders and now Trump/RNC. Whether or not this is just political posturing to gain votes or will actually move forward remains to be seen; but public will is certainly behind the premise.

My opponent also quickly skims over the fed's low interest rates, which could also be considered a main cause for the crisis. These 1% rates were the main drivers for margin purchasing”

Grasping at straws. The early 2000s lowing of interest rates was for stimulating the economy with low interest loans for business investment & growth, as well as encourage home purchases after the slow down resulting from 9/11, Banks, instead of making loans to businesses to stimulate economic growth took Fed money and hedged their bets on MBSs/CDSs for a quick return and to bolster profits reaped from trades and fees. The Fed rate of interest did not force banks to leverage themselves they chose to take these risks.


My opponents main contention with bank deregulation appears to be the “lock and key relationship” between commercial and investment banking entities, from which triple A ratings were given to low-quality securities that in turn attracted investors who were under the assumption that these ratings were credible.

My opponent is confused. Deregulation and repeal of Glass-Steagall set in motion a chain of events. The proliferation of sub-prime mortgages was the first domino in line. With GSA’s repeal commercial banks were now buying (leveraging deposits) and selling MBSs/CDOs (collateralized debt obligation) insured by CDSs beyond their equity requirements. These products are outside the purview of SEC and Commodity Futures Trading Commission regulatory standards in the shadow banking industry; “a pass” given only to investment banks and brokerage houses when GSA was in place . In 2008 commercial banks held $903 billion of these products, Citibank/Group being the largest holder. Derivatives were not covered by FDIC, but insured by other financial institutions in the form of CDSs. As we know the bottom fell out when the MBSs tanked, issuers of CDSs had insufficient funds to payout; commercial and investment banks could not cover the losses

The ”lock and key” relationship was between the banks and rating agencies. The ratings gave a false sense of security to investors. “The Financial Crisis Inquiry Commission Report” found and stated “Put simply and most pertinently, structured finance was the mechanism by which subprime and other mortgages were turned into complex investments often accorded triple-A ratings by credit rating agencies whose own motives were conflicted.”

Commercial and investment banks that sold derivatives required good credit ratings to enable them to sell their products to investors. The credit rating agencies Standard & Poor’s and Moody’s, became big players in receiving large fees in exchange for positive ratings which facilitated their own expansion goals. Standard & Poor and Moody’s were charged by the Justice Department with fraud in grading derivative products they knew would default. They were paid by Wall Street and gave the triple-A ratings Wall Street wanted; investors were again misled as done prior to GSA 1933.

it's clear that the fed's low interest rate was a more underlying problem during the crisis.
No, addressed earlier. The Fed and regulatory agencies ignored and failed to act upon the growth of the sub-prime mortgage and liar loans (mortgages requiring no income verification or down payment) issues which were the root of the problem. - Mortgages that fed the pipe line of investor demand for additional MBSs, resulting in downward pressures from banks upon on mortage brokers to secure additional mortgages. But when the prime-mortgage sector dried up, sub-prime filled the demand, hence the growth of that market and subsequent credit defaults that barelled through the finacial industry in 2008.

Greenspan had the view that the banks would self-regulate and monitor their risk, he was wrong. Complicity due to inaction despite warnings, not interest rates was the fault of the Fed.

Capital Requirements/Glass-Steagall

As stated previously, commercial banks skirted existing capital requirements in the shadow banking sector of derivatives which was/is free from regulation and oversight.For commercial banks, the benefits were large. By moving loans off their books, the banks reduced the amount of capital they were required to hold as protection against losses, thereby improving their earnings” ; looked good in the beginning but turned out too good to be true. . Taking in deposits to make loans was of lesser value due to fees for originating/selling loans and issuing mortgage-backed securities. New higher capital requirement will do nothing to alter off-balance sheet trades; this was the last piece of the domino cascade to fall in 2008 which crashed banks resulting in bail outs.

It is estimated that there is now $5 trillion in derivatives, equaling a third of the US economy which values do not come into play under capital requirement rules; BofA has an estimated 1.5 billion above reported assets. Capital requirements will not offer any protection, especially in the commercial banking sector which is allowed to deal in such products after the repeal of GSA

The FDIC doesn't receive any tax dollars; instead it's funded by the premiums paid bybanks and thrifts for insurance coverage on deposits. in turn are required to have sufficient equity to cover minimum capital requirements. The kicker is with the lift of GSA traditional commercial banks were using deposits against derivatives in shadow banking which was contrary to FDIC’s intent and former GSA rules. Under GSA this muddled situation would not have occurred in the first place; reasoning why it should be reinstated.

I look forward to my opponent’s defense.



Sorry, I'm going to have to forfeit the debate due to poor time management. Not that I would have won anyways, as my opponent clearly has superior knowledge on this topic.

I learned alot though. Maybe we can debate again when I have researched more?
Debate Round No. 4
Debate Round No. 5
6 comments have been posted on this debate. Showing 1 through 6 records.
Posted by Peepette 1 month ago
No what?
Posted by 16kadams 1 month ago
no :P
Posted by Peepette 1 month ago
Posted by 16kadams 1 month ago
Posted by ASG 2 months ago
JP Morgan built a railroad and it cost 9 dollars. This 9 dollars was invested by the people into The Fed. The Fed gave the money to Citi for building Hollywood. Citi failed to repay the Fed. That 9 dollars is in the economy, it is just not with Citi or the Fed or the people who built the railroad.

Conclusion : The people should be more careful about the Fed. There is no need for any laws if you do not have the sense of making a good investment. Laws are manipulated.

'Some people were found dead with gold in their pockets' reported the Mayor.

The Army should look into this Robert Lee, the god damned American Armed Forces.

BA Commanding.
Posted by fire_wings 2 months ago
C'mon guys, not comments?
3 votes have been placed for this debate. Showing 1 through 3 records.
Vote Placed by ThinkBig 2 months ago
Who won the debate:Vote Checkmark-
Reasons for voting decision: Concession
Vote Placed by lannan13 2 months ago
Who won the debate:Vote Checkmark-
Reasons for voting decision: Con had conceded, but it was an amazing debate up to that point and a good read.
Vote Placed by dsjpk5 2 months ago
Who won the debate:Vote Checkmark-
Reasons for voting decision: Concession.