Tuesday, September 23, 2008

Gramm-Leach-Bliley Act vs. Fannie/Freddie

I've been hearing a lot about this present financial debacle being based on the Gramm-Leach-Bliley Act of 1999 which deregulated certain banking sectors. This is mostly put forth by Democrats hoping to draw attention away from THEIR Fannie/Freddie mess. Betsy's page has a good analysis of this.

.....Gramm-Leach-Bliley did not create securitization and collateralized debt obligations. It did not change the rules for banks’ leverage ratios. If anything, Gramm-Leach-Bliley mitigated some risks by allowing financial companies to diversify their businesses, and it is the most diversified firms that are best weathering the storm.........

...In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices.....

1 comment:

Anonymous said...

The bill was called S190 (look it up) it didn't protect anyone. It abolished the Federal Housing Finance Board & excluded the Federal Home Loan Banks (Fannie May & Freddie Mac) from certain securities reporting requirements.

The Republicans controlled the House and Senate in 2005 and they never sent the bill to the floor for a vote. It died in committee (Republican dominated committee).