During The Great Depression era, congress passed the Glass-Steagall act . Along with establishing FDIC insurance, the Glass-Steagall act prohibited the mixing of the “commercial” and “investment” banking industries. It was a response to the collapse of the American commercial banking system in 1933 which followed the stock market crash in 1929. Hearings at the time had revealed conflicts of interest and fraud in many banking institutions’ securities activities. The differences between bankers, brokers and insurance companies were often indistinguishable.
In 1999 the Gram-Leach-Bliley act (GLBA) was passed by congress. It repealed the part of the Glass-Seagall act that prohibited banks from offering investments, commercial banking and insurance, and paved the road for consolidations and mergers that would have been illegal under Glass-Seagall.
It was largely to legitimize the merger of Citibank (Citicorp) and The Travelers Group that the bill was enacted. Citigroup was formed and became the largest financial corporation in the world. Since the repeal of Glass-Steagall, the differences between bankers, brokers and insurance companies have once again become indistinguishable; just as it was in the years leading up to The Great Depression.
It's also interesting to note that sub-prime loans made up only 5% of all mortgages before the 1999 repeal. In the years afterward, sub-prime loans soared to 30% of all mortgages.
Links to some of my sources and many more details are below. It's absolutely fascinating and at the same time very sad to see how intermingled with financial institutions our government is. We definitely have the best government that money can buy! :)
Glass-Steagall Repeal.
Gramm-Leach-Bliley
Citicorp-Travelers Merger
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