Part of the current banking crisis is due to the deregulation that Congress brought in known as the Gramm-Leach-Bliley Act of 1999 or the Financial Services Modernization Act. But that deregulation was part of a general movement during the 1990s, approved by piecemeal government regulations and deregulations, that allowed both investment banks and banks to become universal banks.
As universal banks, bankers could engage in all manner of highly questionable financial activities and expansions that are totally inconsistent with the safety of bank deposits. Given the government’s guarantees of bank deposits, these sorts of activities should never have been allowed. When there are such guarantees combined with the central banking money system, market discipline is greatly eroded. No doubt, lobbying efforts and contributions to politicians have much to do with this deregulation and erosion. There are big bucks to be made by gaming the system of government regulation.
The system we have is the furthest thing from lawful free markets. It is not "financial capitalism," as France’s President Sarkozy would have it. To be fair to him, Mr. Sarkozy’s views require separate elaboration. We will be hearing more from him, I am certain. Like De Gaulle, he may want a place for gold. For the moment, statements like these "Laissez-faire is finished" and "The all-powerful market which is always right is finished" should be recognized as incorrect and misleading. We have not experienced either laissez-faire or an all-powerful market. How could we when we have not had monetary freedom at any time and especially since 1913 and then the New Deal? read more
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