6 ms·

Or the US could simply re-regulate financial institutions the way it did during the period from the 1930s through the 1990s.

j_baker 15y ago
I do like this idea, but I'm a bit skeptical that a relic of the 1930s would work in our modern economy. Thus, I suspect the answer is a bit more complex than "Bring back Glass-Steagall".
- cynicalkane 15y ago
  I think the economics is pretty timeless, actually. A lot of the regulation was aimed at preventing catastrophic bank failures, before the idea of Too Big To Fail was invented. Glass-Steagall contains the idea that a commercial bank, which gets major regulatory freebies by virtue of being a commercial bank (FDIC, Fed access, &c), shouldn't have access to unfettered financial markets. And so on.
- rayiner 15y ago
  Banking hasn't changed so much since the 1930s.
- damoncali 15y ago
  It's really not that complicated. It's just proper alignment of risk.
- dredmorbius 15y ago
  Go and read J.K. Galbraith's The Great Crash: 1929. It's a short book, an easy read, and quite informative. Particularly interesting is his examination of causes and ramifications. If you buy a recent edition, these have been updated through the 1960s and 70s, with a foreward by his son in 2009 (the book was first published in 1955). Though the situation of the 2008-2011+ crash/depression isn't an exact reflection of 1929, there are very strong rhymes.
tryitnow 15y ago
There's a problem with the "go back in time" policy proposals. If the banks beat the regulations we had in place before, what makes us think they won't beat them again? This is why Taleb is proposing a simpler solution - it might be hard to get around. I am skeptical of all proposals, but I think it's important to understand that going back to the previous set of regs might not work since the banks busted through those.
- Retric 15y ago
  Banks did not beat the regulation directly. They spent ~50 years chipping away until the regulations changed then another ~15 before things got really crazy. Personally if we can put the next crash off for ~65+ years before the next crash I think we will have done a great job.
  - nickik 15y ago
    Banks made the regulations themself since ähh a very long time ago. The hole concept of central bank was pushed by banks.
- potatolicious 15y ago
  Wouldn't Taleb's proposal itself simply be a government regulation/policy change? In other words, wouldn't it be just as easy to defeat as simply "going back in time"?
- OllieJones 15y ago
  For the most part the banks didn't find loopholes in the regs, they bribed the legislature to repeal them and to cut the budgets of the regulatory agencies.
sdizdar 15y ago
Actually, if we move all our money from big banks to credit unions and small local banks, the end result will be the same as re-introducing Glass-Steagall act.
- kanamekun 15y ago
  Another similarity will be the lack of online banking. Many credit unions and small banks lack the scale to support that... See also: ATM access.
  - anamax 15y ago
    > Another similarity will be the lack of online banking. Many credit unions and small banks lack the scale to support that... Huh? There are folks who sell the relevant software. My little credit union has had this stuff for years. Yes, including bill pay and so on. I got it before big banks started advertising similar services. I haven't seen any mention of by-phone money transfer or check cashing yet, but since I don't have a smart phone, that's may be me. > See also: ATM access. Credit unions banded together to solve that problem years ago. Some also pay fees for "out of network" use. (Non-banks like Schwab take that approach.)
  - sdizdar 15y ago
    Majority of credit unions outsource their online banking to companies like orcc. My credit union has better online banking than Wells Fargo (not hard to beat). The ATM access do require small changes in behavior (i.e., don't forget to get cash back in Safeway), but it is quite possible to achieve.
  - michaelchisari 15y ago
    I don't know if you've kept up with where things are at with credit unions, but my credit union's online banking is quite nice, and there's a credit union co-op network that means that ATM's which are fee-free and can take deposits are never very far away. It would be nice to have more physical branches (maybe that's another thing a co-op network of credit unions could handle), but really, switching to a credit union was way easier than I had ever imagined.
othermaciej 15y ago
So you think that, for instance, Regulation Q is a good idea? http://en.wikipedia.org/wiki/Regulation_Q http://en.wikipedia.org/wiki/Regulation_Q
- ubernostrum 15y ago
  So you think that, for instance, cherry-picking something specific you don't like and trying to make it a general counterargument to something many people do like, is a good idea?
  - Bo102010 15y ago
    othermaciej likely read Megan McArdle's article at (http://www.theatlantic.com/business/print/2011/10/if-you-favor-a-policy-please-first-figure-out-what-it-is/247092/ http://www.theatlantic.com/business/print/2011/10/if-you-fav...). It's a good article. Although RyanMcGreal didn't refer specifically to Glass-Steagall, it's a good bet that "re-regulating" (i.e. re-introducing measures from that law) might be a bad idea in several cases, Regulation Q being one of them.
    - jonhendry 15y ago
      Megan McArdle is a terrible journalist. I would suggest double-checking all of her claims. For instance, she recently wrote that wealth inequality was probably worse in the 90s than it is now. In fact, it's now much worse than it was then. She didn't bother to check her own assumption.
    - ubernostrum 15y ago
      Unfortunately, long experience has shown me that it's not worth trusting McArdle unless you have all of her sources right out in front of you; I believe the polite way to put it is that she "massages the facts" a bit :)
  - othermaciej 15y ago
    I suspect many people who want to "simply re-regulate financial institutions the way [the US] did during the period from the 1930s through the 1990s" are not fully aware of what those regulations entailed, or why they were repealed. The example I cited might be a motivating factor for such people to get more informed before they decide what they "like". I would further add that counting "like"s is probably not the best way to figure out how to reduce systematic risk in the financial system.

j_baker 15y ago

I do like this idea, but I'm a bit skeptical that a relic of the 1930s would work in our modern economy. Thus, I suspect the answer is a bit more complex than "Bring back Glass-Steagall".

cynicalkane 15y ago
I think the economics is pretty timeless, actually. A lot of the regulation was aimed at preventing catastrophic bank failures, before the idea of Too Big To Fail was invented. Glass-Steagall contains the idea that a commercial bank, which gets major regulatory freebies by virtue of being a commercial bank (FDIC, Fed access, &c), shouldn't have access to unfettered financial markets. And so on.
rayiner 15y ago
Banking hasn't changed so much since the 1930s.
damoncali 15y ago
It's really not that complicated. It's just proper alignment of risk.
dredmorbius 15y ago
Go and read J.K. Galbraith's The Great Crash: 1929. It's a short book, an easy read, and quite informative. Particularly interesting is his examination of causes and ramifications. If you buy a recent edition, these have been updated through the 1960s and 70s, with a foreward by his son in 2009 (the book was first published in 1955). Though the situation of the 2008-2011+ crash/depression isn't an exact reflection of 1929, there are very strong rhymes.

tryitnow 15y ago

There's a problem with the "go back in time" policy proposals. If the banks beat the regulations we had in place before, what makes us think they won't beat them again? This is why Taleb is proposing a simpler solution - it might be hard to get around. I am skeptical of all proposals, but I think it's important to understand that going back to the previous set of regs might not work since the banks busted through those.

Retric 15y ago
Banks did not beat the regulation directly. They spent ~50 years chipping away until the regulations changed then another ~15 before things got really crazy. Personally if we can put the next crash off for ~65+ years before the next crash I think we will have done a great job.
- nickik 15y ago
  Banks made the regulations themself since ähh a very long time ago. The hole concept of central bank was pushed by banks.
potatolicious 15y ago
Wouldn't Taleb's proposal itself simply be a government regulation/policy change? In other words, wouldn't it be just as easy to defeat as simply "going back in time"?
OllieJones 15y ago
For the most part the banks didn't find loopholes in the regs, they bribed the legislature to repeal them and to cut the budgets of the regulatory agencies.

sdizdar 15y ago

Actually, if we move all our money from big banks to credit unions and small local banks, the end result will be the same as re-introducing Glass-Steagall act.

kanamekun 15y ago
Another similarity will be the lack of online banking. Many credit unions and small banks lack the scale to support that... See also: ATM access.
- anamax 15y ago
  > Another similarity will be the lack of online banking. Many credit unions and small banks lack the scale to support that... Huh? There are folks who sell the relevant software. My little credit union has had this stuff for years. Yes, including bill pay and so on. I got it before big banks started advertising similar services. I haven't seen any mention of by-phone money transfer or check cashing yet, but since I don't have a smart phone, that's may be me. > See also: ATM access. Credit unions banded together to solve that problem years ago. Some also pay fees for "out of network" use. (Non-banks like Schwab take that approach.)
- sdizdar 15y ago
  Majority of credit unions outsource their online banking to companies like orcc. My credit union has better online banking than Wells Fargo (not hard to beat). The ATM access do require small changes in behavior (i.e., don't forget to get cash back in Safeway), but it is quite possible to achieve.
- michaelchisari 15y ago
  I don't know if you've kept up with where things are at with credit unions, but my credit union's online banking is quite nice, and there's a credit union co-op network that means that ATM's which are fee-free and can take deposits are never very far away. It would be nice to have more physical branches (maybe that's another thing a co-op network of credit unions could handle), but really, switching to a credit union was way easier than I had ever imagined.

othermaciej 15y ago

So you think that, for instance, Regulation Q is a good idea? http://en.wikipedia.org/wiki/Regulation_Q http://en.wikipedia.org/wiki/Regulation_Q

ubernostrum 15y ago
So you think that, for instance, cherry-picking something specific you don't like and trying to make it a general counterargument to something many people do like, is a good idea?
- Bo102010 15y ago
  othermaciej likely read Megan McArdle's article at (http://www.theatlantic.com/business/print/2011/10/if-you-favor-a-policy-please-first-figure-out-what-it-is/247092/ http://www.theatlantic.com/business/print/2011/10/if-you-fav...). It's a good article. Although RyanMcGreal didn't refer specifically to Glass-Steagall, it's a good bet that "re-regulating" (i.e. re-introducing measures from that law) might be a bad idea in several cases, Regulation Q being one of them.
  - jonhendry 15y ago
    Megan McArdle is a terrible journalist. I would suggest double-checking all of her claims. For instance, she recently wrote that wealth inequality was probably worse in the 90s than it is now. In fact, it's now much worse than it was then. She didn't bother to check her own assumption.
  - ubernostrum 15y ago
    Unfortunately, long experience has shown me that it's not worth trusting McArdle unless you have all of her sources right out in front of you; I believe the polite way to put it is that she "massages the facts" a bit :)
- othermaciej 15y ago
  I suspect many people who want to "simply re-regulate financial institutions the way [the US] did during the period from the 1930s through the 1990s" are not fully aware of what those regulations entailed, or why they were repealed. The example I cited might be a motivating factor for such people to get more informed before they decide what they "like". I would further add that counting "like"s is probably not the best way to figure out how to reduce systematic risk in the financial system.