Oh, those generous bankers of the ‘20s and ‘30s. They wanted to do soooo much for their clients. Loans for shipping contracts of supplies to Europe to help clean things up after the, uh...you know. Big banking deal advice for when U.S. Railroad wanted to buy B&O or Short Line or Pennsylvania or Reading (pronounced “redding”).
Big banks and even bigger fat guy bankers were…everywhere. And somehow, they all looked like the Monopoly guy. And all was good and nice and clean fun for white men…until it wasn’t. Part of what was discovered in the ashes of the post-Great Depression recovery era was that everything was…linked.
Interlocking Directorates.
Banks in cahoots with companies seeking to virtually or directly monopolize industries. Politicians in the back pockets of hugely powerful and generally unregulated banks. And yeah, people had huuuge pockets back then. Think: kangaroos.
Anyway, one of the laws that came out of that era was the separation of commercial banking services (like the people who simply lend debt money to large corporations) and investment banking services, like...the people who advise and facilitate mergers, acquisitions, and other strategic dealmaking.
The belief, or hope, was that, by separating these two, um…over-loving kids in the playground…the insider dealing...and fair resource allocating...and honest dealings of big industry would somehow be more…fair. Or at least open.
So the intent of Glass Steagall was all about fairness. In particular, it focused on the separation of commercial and investment banking. So that was that. These two types of banking were separated...and then the financial markets after 1935 were all smooth sailing, right?
Um, yeah, not so much. Glass Steagall came under assault from many angles, the biggest of which was from the big banks’ lobbying efforts, as they sought to grow...and one way to do that would be to again combine commercial and investment banking services.
So the lobby, along with fortunate (or unfortunate) timing…worked. And in 1998 Bill Clinton said, “I did not have sexual relations with that woman.” And, uh...he also repealed Glass Steagall. Ironically, his exact words were, “It was no longer appropriate.” And he was referring to “the” Act…not the one with Monica.
Anyway, it went away, and from ‘98 forward for a decade, banks merged and got bigger and more powerful. And then they got more aggressive. Loaned more money under pressure from shareholders to keep growing and delivering such loving returns. And then along came the mortgage crisis, which almost brought down the western world in 2008-ish.
A lot of long-haired profs actually blamed the unwinding of Glass Steagall as a root cause for this cataclysmic fail. The phrase “too big to fail” was bandied about. But what the phrase really meant was "too big to be allowed to fail."
Don’t worry though. Because now, with the banking system nicely regulated, we should all be in for a comfy, smooth ride for the foreseeable future...
Related or Semi-related Video
Finance: What are Interlocking Directora...14 Views
Finance a la shmoop what are interlocking directorates? got global
corporate Skull and Bones conspiracy theory on the brain well you'll need it [Man holding skull and bones conspiracy theory]
when you think about this one an interlocking Directorate happens when a
number of companies share directors so that each company is you know business
friendly with the other the heyday of interlocking directorates was the
Rockefeller era when the former wealthiest man in the world wanted to [John Rockefeller appears]
control more or less everything in and around discovery, drilling, storage,
distribution and banking in and around Big Oil
so the Rockefeller interlocking Directorate of say nine white men on
each board and yes in those days they were all white and men well three of
them on this board overseeing the rockefeller holdings in drilling would
also be on the board of well his company holdings in oil storage and
these other three who sat on his oil storage board would also sit on his
train plane and automobile distribution businesses well the boards are
interlocked to be sure that each of the vertically integrated monopolies played
nice with each other and you know kept the monopoly party going ooh and the [Board members playing monopoly]
party did rage on for a very long time interlocking directorates got a lot of
grief in the U.S at the time yes they did and that's noteworthy because well
in Japan and Korea and Russia and other countries which make big products like
cars and washing machines and cell phones that are competitive with the big [Kids playing sack race]
US companies well they're interlocking directorates are the normal way of doing
business you know the norm if gravity still
exists well over time those interlocking directorates carry a structural
advantage over the US system because they can rely on each other for supply
and for demand they can plan many many years into the future and they can elbow
out any would-be competition who might be there with huge heft in government [Man performs karate move on another man]
help in the U.S it's kind of the opposite it's more like every company
for him or herself so there's no cooperation there and the government
it's more the enemy half the time than your business partner
well interlocking directorates are not necessarily evil they're just a [Man with horns appears]
component of a globally competitive industry where the structure of company
ownership needs to reflect the basic concept that each share of common stock
could and should carry one vote so now that you understand interlocking
directorates we can finally get back to the question of who killed Kennedy this
guy sure doesn't have an alibi [Big foot walking in a misty forest]
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