Reply by bunkie

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Posted on No More bailouts, Let irresponsible buisnesses fail

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412 posts in 3116 days

#1 posted 05-22-2012 07:59 PM

The real tragedy of the repeal of Glass-Steagall is that it diverts deposit money from the function of making loans into market plays. This means that capital formation (by collecting deposits) is used for speculation rather than loans to businesses and individuals. Because of low interest rates (because we’re scared of inflation), banks are much more likely to do this sort of prop trading for short-term profits. Glass-Steagall separated the functions of banking and brokerage, now the money in your savings account can be used to buy derivatives and short stocks rather than as loans to your employer or customer. The lost opportunity cost to the economy is enormous and it explains why we have huge pools of capital out there not being physically productive.

Look, banks exist to make money. We can’t blame them for that. But we do expect banks to perform essential functions that make other things possible. Pursuing policies and that promote the flow of money in the physical economy is just good practice. This, in my opinion, is the real issue.

-- Altruism is, ultimately, self-serving

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