Though the markets don’t like it, President Obama made a good move today, in my view, with a plan to limit the exposure of our money to risks banks take. The Glass-Steagell act was put in place in 1933 to help protect depositor money from being used by banks in highly risky market-based activities. The repeal of this act, under President Clinton’s watch, is one of the legs of the stool that created the perfect storm for the economic crisis we now face. I just read, “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers, and here is an extract of my book review:
Much of the book explains a lot of history of Lehman, particularly with respect to how the seeds of our current financial crises, were laid. There were three main causes: The repeal of the Glass-Steagall act in 1999 allowed banks to risk yours and my deposited funds in the stock market; post 9/11 the Federal Reserve maintained inordinate low interest rates, for a long, long time, in order to keep the economy going; encouragement (during the Clinton administration) of Fannie Mae and Freddie Mac (and Indy Mac) meant that less than qualified folks were brought into the property market. This led to a perfect storm: Cheap money, sloshing around the place, feeding an insatiable growth in demand for property, by people that had little or no ability to support the creative mortgages on offer, managed by creative new financial instruments that spread risk around the globe.
Obama’s actions are a painful step in the right direction. I suspect the market will improve tomorrow (all other things being equal), but overall this is a good move for the infrastructure that supports our US economy.
Tomorrow: Data Quality does not equal Data Governance (can’t wait).
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