A financial crisis: During the euphoric 1920s the stock market expanded. Everyone with a little cash wanted in, but the buying spree ended in October 1929, when the market went into a tailspin.
The Great Depression: In the aftermath of the crash and with the onset of the Great Depression, the public lost confidence in the banking system. Between 1929 and 1932, a quarter of all banks in the country failed, recounts The Complete Book of Presidents, By William A. DeGregorio and Sandra Lee Stuart, (Barricade Books; 2013).
A proposal: Sen. Carter Glass, a Democrat from Virginia, proposed a banking reform bill in January 1932, according to a history of the bill on the Federal Reserve website. The bill’s co-sponsor in the House was Rep. Henry Steagall, an Alabama Democrat. The legislation passed the Senate in February 1932 -- but the House adjourned without making a decision.Roosevelt takes office: Roosevelt took office March 4, 1933, having soundly defeated the incumbent, President Herbert Hoover. The national unemployment rate was 25 percent. Within days, Congress passed the Banking Act of 1933 -- the Glass-Steagall Act.
What the laws does: The first paragraph states that act's purpose is to provide for “the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.”Derailing the law: In 1999 the Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act, amended Glass-Steagall. The new law was sponsored by Sen. Phil Gramm, R-Texas, Rep. Jim Leach, R-Iowa, and Rep. Thomas J. Bliley Jr. , R-Virginia. Gramm is now a scholar at the conservative American Enterprise Institute and his biography on the organization's website explains that the act allowed “banks, security companies and insurance companies to affiliate through a financial services holding company.”
So why is this now controversial? Basically, politicians and pundits are arguing about whether Glass-Steagall, if left in place, could have prevented the financial crisis in 2008.Sources:
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