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Oh dear Nick, oh dear

Looks like Nick Cohen has fallen for this "if we just had Glass Steagall we\’d be fine" line.

At the Labour party conference, Yvette Cooper dismissed as too \’radical\’ suggestions that the government should separate high street and investment banking – in other words, prevent ordinary bank customers\’ money being endangered in risky speculations. Too radical? Separating retail and investment banking was the centrepiece of Roosevelt\’s rescue of the American economy after the Wall Street Crash of 1929. Labour does not seem to have learnt the lessons of the 20th century let alone the 21st.

The only problem with this idea is that it isn\’t true.

If you actually look around at the banks which have been failing, it isn\’t the universal banks which have been. UBS for example got hit pretty hard with billions upon billions written off….but it\’s still there because as a universal bank it has a large deposit base with which to finance its activities.

Northern Rock and HBOS were retail banks and they failed. Lehmann Brothers was a pure investment bank and it failed.

Economists are still arguing loudly about whether Glass Steagall helped or hindered last time around…and the evidence from the last few months seems to show that the sort of division proposed would hinder (in fact, there are no large Wall Street investment banks left anyway). Advocating something just because St. Franklin did it last time around is simply nonsensical.

3 thoughts on “Oh dear Nick, oh dear”

  1. Separating retail and investment banking is indeed nonsense. But the things which *should* be separated are stockbroking and investment banking….

  2. For the land of the free, the US has some of the most oppressive banking regulations and corrupt political interference.

  3. Tim Congdon had a nice letter in last week’s FT explaining that the real reason for separating out the various bits has to do with conflicts of interest and moral hazard. I think he’s right on this one.

    Anyway, I’ve set up a fun online poll on the best way to sort out the banking crisis.

    To paraphrase Sherlock Holmes, once you have eliminated the downright foolish, what you are left with must be the way forward.

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