The Pros And Cons Of The Glass Steagall Act

Resulting in a financial crisis as the government and banks had failed to constrain the financial system’s creation of private credit and money. The lack of responsibility in the government and banks led to the downturn in the economy now known as the great recession. (document I) Starting in 2007 there was a noticeable increase in mortgage

The American federal government slashed effective tax rates for large corporations and the rich, mainly the top one-percent. The major drop in taxes really began in the late 1980s in which large corporations have been reaping the benefits ever since. Regulations, which keep corporations and departments in check, were severely cut. The cuts in regulation really helped Wall Street in which Wall Street firms now had greater economic freedom. The model eliminated the Glass-Steagall legislation, which prevented large firms from making risky financial investments.

After the Great Depression, the Bretton Woods pact was not the only innovation, in fact in the US in 1933 had been approved the new legislation for banking, the Glass-Steagall act: the division between the commercial and investment banks. In order to alleviate the problem born in 1929 after the Stock Market Crash there were two acts entering into force. The first one, in 1932, made the Federal Reserve more powerful in control of the money supply. The second wanted to make safer the banking system. In fact after this date banks cannot be commercial and investment banks at the same time, also the insurance services cannot be supply by banks.

Poverty in 1920’s America was defined by making less than a certain amount of money each year, which was determined by the government (BBC). The masses were indifferent to the amount of people impoverished, proving the mindset of false prosperity. The preconceived notions that the U.S. economy would be unimpaired were soon disproved by the Great Depression. People who were impoverished were getting loans, and buying luxury items (Facts). This lifestyle of believing in the false prosperity and not realizing the problems during the 1920’s of America caused people to suffer more.

Trusts, or large monopolies, were corporations that combined and lowered their prices to drive competitors out of the business. This infuriated many americans at that time because it allowed such a small number of people to become wealthy, or even successful at all. When Theodore Roosevelt became president, he sympathized with workers unlike most of the presidents in the past who usually tried to help the corporations. As illustrated in Document A, Roosevelt wanted to hunt down the bad trusts ad put a leash on the good ones in order to regulate them. However, it only had a limited effect because the government was unable to control the activity of banks and railroads which were two of the most powerful industries in the world.

Banks were making money off their mortgage loans they were selling off in synthetic CDO’s. These debts were actually worthless. When the housing market and Wall Street crashed, many lost their investments. These were meant to be safe investments but because of the actions of the banks, mortgage brokers and many other factors, millions lost everything. The Big Short Conclusion The Big Short is relevant to the content outlined in the SAG document for

Edward McClelland believes the American Dream is on hold because the middle class is shrinking and it’s not from capitalism, but from the failing government. It seems like Presidents Nixon, Carter, and Reagan were actually hurting the middle class whether it be from Nixon’s answer to inflation, Carter’s leverage against unions, or Reagan’s low prices of employment or even the firing of workers on strike. In 1982, when Ronald Reagan was in office, the unemployment rate was at a rate of 10.8 percent. This high percentage rate shows no hope for the middle class to get back on their feet. To help get a better picture of what it looked like, McClelland compared the declining of workers in unions and the middle class income, and says that they fit on the same axis.

If inflation were to occur it would give the people that lost their money a hard time to buy food, which means supporting a family. In other cases, deficit spending could also cause the taxes to increase to drain extra money out of the economy (Investopedia, 2017). With all these negative consequences in mind, deficit spending was very bad for the economy that caused lots of problems. This reason connects to the claim because it demonstrates the negatives of deficit spending along with the New Deal. After the government spends all their money on everything for the New Deal, it affects the economy by having them pay many taxes.

These things enabled investors who were close to banks to succeed and increase their wealthy. There were many people who believed that this would lead to a collapse in the economy for those with unequal privileges, and despite the large boom in the economy the first few years, there was the panic of 1819. Prices went sky-high, and high inflation only worsened the situation for many of the laborers. The first to blame was the Bank of the United States, which had stopped exchanging precious metals for banknotes. When it began to call its loans, people were unable to pay, leading to a devastating effect on the economy.

Banks were unable to keep up with loans because the Federal Reserve refused to backstop the banks. The banks eventually failed from lack of confidence from the public and bad loans. (Introduction) Five thousand banks had collapsed between 1923 and 1930. (Wall Street Crash of 1929) To add to the already messed up economy, agriculture was nothing to fall back on because it was already weakened beforehand with the mix of overproduction from companies and the rapid increase of new technologies. Farmers being the backbone to the American agriculture and having it fail because of companies, shows just how deep of a hole the Stock market had fallen in.