Should the Glass-Steagall Act be brought back?

Just about three years ago, the United States entered into a financial crisis so large, it is said to have been one of the worst since the Great Depression. There were many factors that influenced the recession of 2008, among them were the housing bubble, easy credit conditions, and incorrect pricing risk.


Aside from all this, poor regulation was also stated to be one of the major causes of the twisted manipulation of finances among the major players of Wallstreet.   However, before the freedom that bankers had, there was a law that was put into place to act as a firewall from manipulation between commercial and investment banking.


This law is popularly known as the Glass-Steagall Act, which was made in 1933, but was repealed in 1999.   Today, more than 10 years after its repeal, we wonder whether the act was wrongly revoked, and should a movement be made to return it to its rightful place in law?   More importantly, should this be considered to be the number one agenda of Occupy Wallstreet?  


Overview of the Glass-Steagall Act

The history of the Glass-Steagall act goes as far back as the Great Depression in the 1920’s. It was then when Congress began to examine the mixing of commercial and investment banking that led to conflicts of interest and fraud in some banking institutions’ securities activities.   In order to develop a barrier between commercial and investment banking, and in order to prevent fraud and manipulation, the Glass-Steagall Act, also known as the Banking Act of 1933, was formed.


Aside from creating a barrier between investment and commercial barrier, this law also created the groundwork for legislation that allowed the Federal Reserve to allow banks into securities in a limited manner.   The Act was propagated by Senator Carter Glass, a former Treasury secretary and founder of the U.S Federal Reserve System along with Henry Bascom Steagall, who was a House of Representatives member and chairman of the House Banking and Currency Committee.  


Effects of the Glass- Steagall Act


The act was made as a reaction to one of the worst financial crises at the time. During the enactment of the law, banks were given one year to decide whether they would specialize in investment or commercial banking only.   Only 10% of commercial banks’ income would be coming from securities, except for the underwriting of government issued bonds. At this time, financial giants such as JP Morgan and Company, which was largely part of the problem, were targeted and forced to cut their services, thus greatly diminishing a portion of their income.


Because of this barrier, the Glass-Steagall Act effectively prevented the banks from using depositor’s money in case of a failed underwriting job.   Despite the safety and regulatory purpose of the act, many people in the financial community considered it to be too harsh. It was reported that even Glass himself moved to repeal the act shortly after it was passed, saying that it was merely an overreaction to the crisis.  


Repeal of the Glass-Steagall Act and It’s Effects


The banking industry has been seeking the repeal of the act since the 1980’s. It was during 1999 when the Gramm-Leach-Bliley Act was made that repealed the Glass-Steagall Act.   During this time, the repeal of the act was considered to be a way to help American banks grow larger and better, and thus able to compete against other banks worldwide.


It was only 10 years later when the repeal of the Act showed its effects. It is said that the repeal of the Glass-Steagall Act contributed greatly to the global financial crisis and the recession of 2008.   Because the barrier between commercial and investment banking no longer existed, this allowed non-transparent financial manipulation that allowed investment bankers to amass huge fortunes.


It is said that large banks born out of the repeal of the act such as Citigroup, and insurance companies like American International Group, would not have run into trouble if the law had remained in place.  


Reasons for Reinstatement


Despite what most financial critics would consider to be a “harsh” law, the Glass-Steagall act served its purpose for many years. Under the Act, regulators protected bank depositors from speculation of the stock market and other investment banking activities.


It also prevented manipulation of finances among the major players of Wallstreet who only managed to earn their dollars not through trading, but through “financialization”. Putting back the act to effect would help diminish fraudulent activity and will give the regulations we seriously need.


By putting this movement on top of Occupy Wallstreet’s agenda, this could bring focus to one of the most effective things that can be done in order to stop financial manipulation, and bring regulations back at bay.


Reader Actions!


Leave a comment answering the following questions.   Why should or shouldn’t the Glass-Steagall Act be reinstated?  How would you personally be affected if the Glass-Steagall Act is reinstated?



  • I am not sure that I would be directly affected by a return of Glass-Steagall. It certainly sounds like a good idea to enact measures to prevent another crisis.

  • YFS /

    My only problem is that just like another other law there will always be some way to get around it. Organizations get real creative to dodge regulation that negatively impacts them.

  • Should the Glass-Steagall Act be brought back? | Your Finances Simplified…

    Just about three years ago, the United States entered into a financial crisis so large, it is said to have been one of the worst since the Great Depression. There were many factors that influenced the recession of 2008, among them were the housing bubb…

  • Personal Finance Buzz /

    Personal Finance Buzz…

    Your story was featured in Personal Finance Buzz! Please visit and promote your article….

  • I agree. Laws are only as good as how many different ways they can be broken or avoided. The concept sounds good on paper but it would only really work if there were no exceptions made.

  • YFS /

    I like the sound of no exceptions made! That's how laws should be in my opinion

  • I don't know if it contributed to the problem, but it kept commercial banks from doing risky behavior. I am in favor of bringing it back. There were a lot of people to blame for this. The mortgage bankers, and investment banker too. Loaning money without earnings verification is plain stupid and packaging the subprime loans and giving them a high credit rating is equally stupid. So we had a perfect storm of stupidity. The Glass-Steagall would not dtop thst!

  • YFS /

    I definitely agree that everyone should shoulder the blame. But, do you think that if the banks couldn't package up and sell the loans and had to keep them on the books we would avoid the risky behavior?

  • Yes, let's bring it back. Any law that limits and divides insane business risk is not only protecting the entire economy, but the idiots that take on these risks in the first place. The free market does not always make the best decisions for everyone.

  • YFS /

    Would you agree that free markets work if they were actually free? If institutions knew they would have to suffer the consequences of their bad decisions would they take such large risks?

  • Absolutely Glass-Steagall should be brought back. Recent history has shown that banks made incredibly risky investments and did not have the financial reserves to cover losses if they occurred. This behavior brought the U.S. economy to it's knee's and we are still digging our way out of it.

  • I think that bringing it back makes a lot of sense. It seems pretty logical to separate investment banking from commercial banking. I think even more so that the Glass-Stegal act, we need to really look at some serious regulation of the derivatives industry. It is absolutely ridiculous what lobbyists have been able to do here.

  • I have no problem with Commercial and Investment Banks joining forces. If the act were to be reinstated, I'd probably lose my job – so let's not do that. Instead I would focus on the rating agencies. There is nothing wrong with risk, as long as it's priced properly. The problem I saw is that Moody's and S&P has no idea what derivatives are, yet they rate them and tell everyone else how safe they are.

  • YFS /

    What is your open of the the Dodd-Frank Act? This act requires that OTC derivatives be regulated.

  • YFS /

    What are you thoughts on the Volcker Rule? Which was first publicly endorsed by President Obama on January 21, 2010. The proposal specifically prohibits a bank or institution that owns a bank from engaging in proprietary trading that isn't at the behest of its clients, and from owning or investing in a hedge fund or private equity fund, as well as limiting the liabilities that the largest banks could hold.

    Under discussion is the possibility of restrictions on the way market making activities are compensated; traders would be paid on the basis of the spread of the transactions rather than any profit that the trader made for the client.

    As far as rating agencies. They are not independent. They get paid by the people they rate! So, it's a catch 22. I think rating agencies should be 100 independent with no conflict of interests or not exist at all. S&P and Moody have already showed that they have no clue how to rate exotic new products.

  • YFS /

    I think banks would just diversify their portfolio and run the risky stuff through a subsidiary to get around the law. If they reinstate the act it should be harsh penalties for banks who try to game the system and create a "new" entity to do the speculative stuff.

  • Separation of investment and commercial banks is just part of the problem. The contributing factor was the loose credit, no verification of earnings and bogus credit ratings of the packaged loans.

  • Jami /

    YFS says: "Because the barrier between commercial and investment banking no longer existed, this allowed non-transparent financial manipulation that allowed investment bankers to amass huge fortunes….'financialization'."

    If this is the case, then this is the reason why the Act should be reinstated. But can we somehow add in their that if a lender loans someone money for real estate without gaining proof of their ability to pay the monthly mortgage, at the current interest rate and at the max potential interest rate of an ARM, that if it turns out the borrower would have never been able to pay the ARM at the eventual rate that they can be absolved of the mortgage debt partially or completely AND that the original lender must face imprisonment AND fines???


    Oh, and since I am currently only a customer of retail banking, I don't think the reinstatement of the Act will affect me, as I am not a customer of investment banking. But maybe it will. Please explain, if you think so.

  • Aloysa /

    As long as it keep banks away from exercising risky behavior and protects consumer, it should be reinstated. I think consumers need more protection than ever. Especially those who are not financially savvy.

  • It really just seems like there is a pendulum swinging us between recession to expansion, from boom to bust. When things are not going so well, we want more regulation but once we let back on regulation things go too far the other way.

    I honestly think the system is too inflated to bring back the Glass Stegal act. We just have to figure out a way now to work with it.

  • YFS /

    This act won't help the consumer much but, it will separate banks and securities. Banks need to stop lending to non credit worthy consumers in my opinion and taking huge risks and the government needs to never bail a business out again.

  • YFS /

    You make a great point. The original act came about during a serious economic decline. Hmm.. Do you have any suggestions on what can be done to work through it?

  • YFS /

    I do not think the person should be absolved of the mortgage debt partially or completely. The consumer needs to shoulder some responsibility for taking out the loan as well. I feel that both parties should lose or have to deal with consequences of making a bad investment. Meaning, the borrower and lender take their lumps. No bailouts on either side of the table. Face imprisonment for making a bad loan? I can't agree with that.

    As for the act I doubt it will affect you personally unless you work in the investment industry for a bank and sell services. Consumers will be affected by tightened lending standards. If the Act is in place only the most credit worthy will get loans. Lending will tighten.

  • Charles Areson /

    I remember when the law was repealed and I thought it was a bad idea. Both democrats and republicans said that the law was outdated and indicated crashes like what brought on the great depression were not likely in today's world. Well?

    I know many people who went through the Great Depression and what we face now is small by comparison but it is a reminder what can happen. I am a free market capitalist, but I also know that some regulation is needed. No business should be "too big to fail."

  • YFS /

    I totally agree on the that no business should be too big to fail. But, do you believe restating the act would have saved us from our current economic issues? Do you think Banks would find some way to get around the regulation?

  • JanineJ /

    Yes, I vote for bringing back the Glass-Steagall act. The act itself became like a shield against fraudulent acts committed by banking institutions. It protected the welfare of the depositors and safeguarded their money. I think that the repealing of the act was itself an opening of a way for banking institutions to commit deceitful acts. The repealing allowed non-transparent financial manipulation that allowed investment bankers to accumulate riches. Transparency is always good for the public.

  • Jami /

    Thank you. But the lenders knew what they were doing. They knew the ARM's would go up and they never had to verify income. And they would tell people that if their credit improved they could refinance into a fixed rate loan. These were all lies. If Madoff can get imprisoned for what he did (a case where the "victims" are just as responsible because 1) it was a big secret and they would not tell just anybody about this man's investment company, 2) many of these "victims" were already in high income brackets, and 3) if after receiving several monthly or quarterly statements in a row that showed above-average high returns then these people are really not "victims" because even I know that if I think it is possible to consistently get high returns on stock or fund investments then I am engaging in delusional thinking), these sub-prime lenders NOT verifying income because they were not legally obligated to still did not meet ethics standards and it is sad that because they broke no laws (that I know of) they won't suffer any fines or imprisonment. But today what laws have Congress set up to legally obligate lenders to verify income for an ARM at the highest possible future interest rate? In small claims, if someone loans someone money who has no likelihood of being able to pay, it is usually a rule that there will be no contract enforced. However, for huge mortgage loans I don't know, but these borrowers who lost their homes when their ARM's went up should not be 100% left on the hook.

  • YFS /

    First things first. Thank you for your comment. You really keep me on my toes!

    The difference between Madoff and a bank was that Madoff's investors were intentionally defrauded. He produced bogus statement showing that they made money and he often paid out people when they needed their money. Also in the defense of Madoff's victims, if your investment adviser is always producing profits and his statements check out why would you question it? You would feel that you are paying for him to beat the market.

    As it pertains to mortgages, not everyone was duped or defrauded. There was a lot of willing participation by consumers in the process. If a bank says I will give you 5 million dollars or a credit card with 100k limit. It is up to the consumer to sign the dotted line and payback the loan. Yes, some people were pushed into high commission products but not everyone was cheated.

    I'm sorry if you're going to do a deal for 100k or 1 million dollars you need to do your due diligence before signing the dotted line. To place all the blame on the banks is not fair to me. Also, ARM's in their nature are not exotic are hard to understand products. It goes back to my point of share responsibility. My neighbors took a willing risk in buying their home because they thought it would shoot up like their last house did. It didn't..

    The only people who should suffer fines or imprisonment are those who committed crimes. So any broker, real estate agent, bank or consumer who committed fraud/crime should face their punishment.

    Lastly, the people who lost their homes whether via an arm or fixed rate loan are not entirely on the hook by themselves. The bank has to take back and asset then sell into a market. Like the person the bank has risk when a borrower is foreclosed upon.

    Here is my question to you. If the bank has to shoulder more of the loss. Should they be entitled to an equal share of the gain if the property does appreciate?

  • Jami /

    I don't know the answer to this question. If I am still paying on my mortgage when it appreciates the appreciation is called equity, correct?. Should I immediately have access to borrowing against that equity when I still owe on the mortgage? Maybe not since I really do not own my property 100%.

    As far as people doing their due diligence on mortgage loans, the same goes for people who delusionally think their investment company is "beating the market." Again, these customers of Madoff only told certain fellow high-income people about Madoff's company. I don't know what the minimum was needed to invest with him but it must have been a big amount and therefore they should have done their due diligence research on Madoff. I would say to myself "Who is this man who requires big down payments (or whatever it is called) but 'beats the market' each and every month or quarter?" Sheesh, there's a saying that if it sounds too good to be true it usually is and so yes, if my investment adviser is always producing profits I should question it. The blame is not all on Madoff.

    Can you please explain about these statements "checking out"?

    The blame is not all on these people who didn't have to prove their income for these mortgage loans nor is it all on the banks. It is both the borrower and the lender's fault and the investment company and the investment customer's fault. And it's also Congress' fault.

    The Madoff incident is proof that if the victim can meet as many of the following criteria: white, male, high-income, Jewish, Christian, politician, celebrity/filmmaker, he/she will get justice and wasn't expected to have to do any due diligence to protect themselves from harm, but instead the onus was on the other person to comply with the law which protected the wealthy citizens from harm in the first place. Low ethical expectations exist for the wealthy when they are the consumer.

    The housing bubble crisis proves that if you meet as many of the following criteria: black, female, low-income, Christian, Muslim, unemployed, underemployed, he/she will be viewed as someone who knew or should have known better that they were going to get harmed. High ethical expectations exist for the poor, because they are going to "likely" be deceitful in trying to live like the Joneses or achieve the American Dream or get a piece of the pie or a crumb. There were precisely no laws during the housing bubble on proof of income under the guise of giving poor people a chance at the American dream, but in fact this lack of legal obligation was to disenfranchise them further and make it look like the low-income person allowed themselves to be defrauded. No, it is both the lender and the borrower's fault.

    These borrowers were praying beyond hope that they would be able to refinance at a lower, fixed interest rate if they paid their mortgage or refi payments on time during the first one or two years and thereby improve their credit rating. Many of these loans were made on old homes that had already been owned outright and had been re-appraised or against equity in homes that had so-called "appreciated" during the life of the mortgage.

    It's also Congress' fault because Congress makes laws to protect high-income people through SEC. I say this because it has always been a fact that the majority of investors are high-income. The majority of low-income (or middle income) people who invest do so through 401-ks thru employers. And then Congressmen (who each make over $200,000 per year) exempt themselves from some of these Acts. Like on insider training and on other legislation.

    Today, I can't even qualify for a $200 secured credit card to help build my credit. A 100% secured credit card??? The financial industry is whack! It just doesn't work for low-income citizens and it's like pulling teeth to get some laws to protect us, such as the free annual credit report. Why was this so difficult?

  • YFS /

    My question at the end of the post was to see what your thoughts were on housing gains. In your last response you said banks should be responsible for the losses not the borrower. But, do you agree banks should get all the gains if they take responsibilities for the losses? If you lose 30% on your home the bank will pay. If you gain 30% on your home. The bank will take it.

    For your statement concerning the Madoff scandal. I believe the blame is all on madoff because he orchestrated a ponzi scheme and defrauded investors. He said one thing and did another he even falsified records. What I mean when I say "The statement checked out" is it was hard to do your due dilligence when Madoff falsified those statements to make it look like his portfolio made money when it really didn't. So, say you were one of his investors you get a statement and it says up XYZ% when in reality it was down XYZ%. He blatantly lied and manipulated results aka fraud.

    I agree with you 100% on this statement:

    "It is both the borrower and the lender’s fault and the investment company and the investment customer’s fault. And it’s also Congress’ fault. "

    The people defrauded in the madoff scandal didn't get 1 cent back. 1 man schemed people out of 50 billions of dollars and he didn't just scheme individuals he messed up institutions! He had banks, pension funds, schools. he ripped off everyone. In your response you said "will get justice" All madoff did was go to jail. I don't call that justice.

    The housing bubble crisis wasn't a crime against minorities exclusively. Unlike the Madoff scandal all participants of the bubble didn't lose. Most people who were victims of fraud during the bubble were exploited by a person of trust. I know several people who were befriended by preachers, teachers and neighborhood people they knew all their life! It was a really sad sad situation. But, some home buyers made some serious money buying/selling in the market. Some are doing well while buying and holding now. But,a lot of people lost out.

    Let's be clear, I agree with you 100% that the onus of the housing bubble was a shared responsibility. Unless foul play was shown to be evident. The blame goes to equal parts borrower and lender.

  • Jami /

    I think I understand your question now. And I only think the lender should take responsibility when it is decided they knew or should have known the person was going to likely be unable to pay or just didn't verify. No one's income is guaranteed, but if someone's current income at the time of closing would not be able to cover any future significant increases in interest rates the lender should take the hit and therefore the lender should also be able to take any gains in equity if an ARM loan is involved (and, again, where unverified income was taken into consideration for qualification for the loan). But will the borrower get any of that gain as credit toward the principal of the original loan?

    Also, thank you about clearing up all who took advantage of the closers of these ARMs during the housing bubble. I didn't know people were getting "kickbacks" for referring folks.

    I think real estate will need to become just as much protected under some agency, as stock/fund investments are heavily protected under the SEC and related Acts.

    The rich keep trying to get richer, which the desires of any and all "victims" of Ponzi schemes to find someone who can "beat the market" prove time and time again, but Mt 19:24 is a blessing for those who have understanding.

  • YFS /

    I believe the problem with the statement

    "I only think the lender should take responsibility when it is decided they knew or should have known the person was going to likely be unable to pay or just didn’t verify."

    Is that if a lender knows they will take the loss if borrower can't pay. They will really slow down or eliminate the lending.

    So you will have a scenario were unless you have impeccable credit, high income and substantial assets you will not be able to get a loan.

    This will create a rental market where I as a landlord can over charge you to rent from me since I have the ability to get a loan. This will definitely make the rich more money.

    Arms are a funny product. My neighbor has an arm and his rate actually is lower than my 3.375 fixed rate mortgage. So you can win with arms also.

    I agree with you on proper regulation needs to be in place. The thing about it, it is already in place. You should be notified and have to sign a document if a conflict of interest or kickback will occur.

    The problem is that the buyers didn't read the documents they signed or do the math on the loans. People blindly signed their loan documents because a trusted person was on the other side of the table.

    The sad thing about the victims of the Madoff ponzi scheme is that institutions that house middle and lower class taxpayers money were victimized. Entire pensions of schools, states, unions were caught in the mix. So lower-High income people got ripped off due to the "trust" factor.

    To answer your question: "But will the borrower get any of that gain as credit toward the principal of the original loan?" My response is no. If the bank has to take 100% loss it is only fair they get 100% gain over the principal of the loan. For example, if you buy your property for 100k and sell it 15 years later. Anything over 100k should be the banks since they took the risk of taking on the loss if you are foreclosed upon.

    Do you think this is a fair trade for taking on the loss if a person defaults?

  • Jami /

    What should happen is that if I buy property for 100k and sell it without EVER causing the bank a loss, then I should receive all gains. And to be sure, all gains should be set aside until the mortgage is paid off or sold off, so that if I do default then the gains that were set aside will then go to the bank. So there is a difference between "risking a possible loss" and actually "having to take a loss." In the former, the gains that have been set aside will be given to the borrower when s/he successfully pays off or sells property and in the latter the gains will be given to lender when borrower defaults and home is finally foreclosed. Now if borrower is late but catches up without ever going into foreclosure, borrower should get gains or at least partial. This is fair.

  • YFS /

    You've just explained how the mortgage industry works right now. Except you did not provide specify anything a bank would get for having to take on 100% of the loss and the borrower gets to go free in the case of a default.

    You said the following: "If this is the case, then this is the reason why the Act should be reinstated. But can we somehow add in their that if a lender loans someone money for real estate without gaining proof of their ability to pay the monthly mortgage, at the current interest rate and at the max potential interest rate of an ARM, that if it turns out the borrower would have never been able to pay the ARM at the eventual rate that they can be absolved of the mortgage debt partially or completely AND that the original lender must face imprisonment AND fines???"

    But, let's just say that banks had to follow your scenario above. The banks would tighten lending standards and only lend money to people who have 100% ability to pay. Then we will have a scenario were only the privileges can buy homes and everyone else rents. You know what will have to rental rates with the increase in demand? I can tell you now.. I charge what the market will bare for my rental properties. So they will go through the roof.

  • Jami /

    If I default on my loan it stays on my credit report for the next 10 years, right? What more does a bank want, if there were no gains? Blood? My life?? What else could the bank possibly get?

    So, I guess, your point is that lending standards should not tighten so much that low- to mid-income people can't qualify for a mortgage. But of course, income should be verified!!!! And if the credit report shows that there is a risk that the person might not pay even when they have a good income, then give them the ARM if the verified income shows they can handle it if the interest rate goes up to even the max. That is all I am saying. Especially if they have never had a mortgage before, like me, and have had a good income for some time.

    And if I default then if there was no negative amortization and the foreclosed property sells over what I paid for it for some magic reason, the gains go to the bank, of course. right?

  • YFS /

    Bank will simply adjust for the level of risk. It will make it harder to qualify for a loan. So instead of taking people with a 620 credit score and a debt to income ratio of 38%. You will needed a 720 credit score and a 25% debt to income ratio. The standard you're suggesting that should be imposed on banks will ultimately eliminate tons of people who could afford a mortgage under normal circumstances.

    Also, the bank verifies income at 1 point in time. Would the banks be responsible if a person who's income was verified in 2008 but loses their job and is in foreclosure in 2011?

  • Jami /

    No, the banks should be responsible for not verifying income at all or for approving someone whose verified income doesn't show that they can pay whatever the monthly mortgage payments will be esp. at the max interest of an ARM. And income should be more important than credit score, and credit score should be less important than debt to income ratio. If I have a 25% debt to income ratio (no student loans included) and a 600 credit score with a $60,000 annual income that is verified that I have had for at least 24 months then I should be approved for a $200k mortgage with a 25 year mortgage and 8% interest. And no one's ability to pay is a guarantee or even close except people with very large assets and normal liabilities.


  • YFS /

    The reason why income isn't more important than credit score is because income varies dramatically. Some people make large amounts of money on a seasonal basis. Credit on the other hand deteremines what type of person you were over the years.

    So in your example of a person with a 600 credit score. Let's talk about why they have such a low score. The only reason to have a low score like that is because they failed to adhere to their obligations. That is not the type person you want to risk giving a loan too. The bank is not in the business of owning properties.

    Banks are in the business of making money from loans and other investments. I agree with you when you say

    And no one’s ability to pay is a guarantee or even close except people with very large assets and normal liabilities.

    So what will happen in the instance the banks have to take more responsibility for people who "couldn't pay" is that the banks will only make loans they no without a reasonable doubt will never default. That means lower/middle income people will own 0 property.

  • Jami /

    Ok, then. So what is the best "real property" acquisition plan for low and middle income folks?? Or are you simply trying to convince me that not verifying income or going ahead and approving folks for ARMs is OK?

  • YFS /

    I'm not saying that not verifying income is OK or trying to convince you that it is OK. I am trying to say that everyone involved in the loan should be held responsible. If the borrower cannot pay the loan they should have damaged credit and the bank should have to try to sell the asset again. But, I also think that anyone who is applying for a 100k+ loan should know what they are signing before starting the loan process. It is not up to the bank to hold their hand or educate them. The consumer should educate themselves before entering into the business transaction.

    Let's be clear, ARM's didn't cause the housing bubble or the collapse. ARMs make up a very small part of the market. A lot of those loans came from rogue brokers whom banks rely on to provide loans. The point I was trying to make was that if you put certain restrictions on banks, be ready for the inevitable backlash of reduce/tightened lending standards. Then people will complain that only the rich can get loans, congress will react with policy/regulations that encourage the banks to lend to "risky" people and the cycle starts all over again.

  • Jami /

    The housing bubble, to my understanding, was caused by high demand (mostly people following that Rich Dad, Poor Dad theory) which led to an oversupply of overpriced houses and then renting to people that lost their jobs come the recession. And the collapse was caused by not verifying income and still approving people for mortgages anyway.

    Are you saying the only responsibility for banks is to "have to try to sell the asset again"?? It's too bad that the banks get their way when it comes to lending to "risky" people. It's either their way or no way. So Sad!!

  • YFS /

    Technically the bank only has to follow regulations and not commit fraud. Some impose additional standards on top of those requirements. Also, a lot of bank depend on outside sources to assist in the loan process. For example, real estate brokers and real estate agents. If there is a lapse in any of these areas we have an issues. I noticed a lot of banks going to the automated underwriting model. When I completed my refinance I went through automated underwriting and let me tell you there is no grey area. It is either you meet all the requirements or you don't.

    It is a bit more complicated than simply having to sell the asset again. But, that is one of the things the bank must do when someone is foreclosed upon. The only reason why it seems that "the banks got their way" was because some of them were bailed out. I wish no one was bailed out, person or bank, so if you "play you pay".

  • Jami /

    Yes, i have strong opinion about bailout, too. Just that if banks do get bailed out then many of these foreclosed homeowners did qualify for bailouts, too, with regard to the principal of the loan. The entire picture at the time of closing or before should have been reevaluated by a human being to see where the unethical decisions on the part of the lender went astray and the bailout of the borrower should have happened accordingly. There were no legal obligations to bailout banks and they were bailed out anyway; as if the feds were saying that these borrowers should have done their own homework and since they did not let's help the only "victims" of this situation–the banks. And this simply is a falsehood. The banks played a part in their own undoing. Any seller of anything has an ethical requirement to inform the customer of everything, but the legal rule is "buyer beware." Whether or not banks have to be ethical, if they are not, please, let's call it what it is: the banks acted unethically. There are even rules in contract law that protect the more vulnerable party from the party with the upper hand when it comes to fine print–not much, but there is some protection there.

  • DannyO /

    Of course it should be brought back, duh! The middle class has been devastated from the result of the Glass-Steagall Act being repealed. Greed replaced common sense and America nearly failed as a nation. All the while the 1% is laughing because they are still rolling in profits. Wall Street should be and needs to be kept separate from banking and the middle class, which by the way, is what America is famous for , needs to grow and prosper once more. Foreclosed houses need people in them, those that had to walk away but were working and trying need their credit score cleaned from this because it wasn't their fault. Mortgage money needs to flow again, wake up America!

Leave a Reply

Your email address will not be published.


Teach me how to improve my finances, 

so that I can buy a home

and stop wasting my money on rent