Andrew Leonard: Was Rockefeller behind Glass-Steagall to outmaneuver rival Morgan?
... Exhausted by the pace of keeping up with minute-by-minute financial chaos, I took a break for the last hour or so and read Alex Tabarrok's "The Separation of Commercial and Investment Banking: The Morgans vs. The Rockefellers," published in the Quarterly Journal of Austrian Economics in 1998.
Alex Tabarrok is a professor of economics at George Mason University. He co-authors the popular Marginal Revolution blog with Tyler Cowen, and he leans strongly libertarian (a point that his appearance in The Quarterly Journal of Austrian Economics underlines, as the publication is a standard-bearer for academic libertarian economics.)
Libertarians feel a bit under siege right now, while progressive leftwing bloggers feel their oats, interpreting every new headline from Wall Street as proof of the failure of the deregulatory wave set off by the Reagan revolution. As I noted earlier this week, we've been hearing a lot about the 1999 repeal of the Glass-Steagall Act lately, because for some pundits, it seems pretty easy to connect the dots between the demise of this landmark piece of Great Depression-era legislation and the explosion of bad behavior on Wall Street in recent years. Glass-Steagall broke up the banking industry by separating commercial banks from investment banks. Gramm-Leach-Bailey removed that restriction in 1999. Now, investment banks are dropping like flies, and a new era of super-banks, or, as Tabarrok refers to them, "unified" banks, appears to have begun. And it's all Gramm-Leach-Bailey's fault, cry the unrepentant New Deal regulators.
Tabarrok isn't having any of it. Last night, he blasted out a blog post arguing that "Many wise people are now recognizing that the repeal of Glass-Steagall was one of the few saving graces of the current crisis."
Tabarrok's argument is that without the repeal of Glass-Steagall, the beleaguered investment banks who are currently falling into the arms of commercial banks, such as Bank of America or JP Morgan Chase, would have nowhere to go. "Unified banks" he writes, are actually safer and more stable than their separated counterparts. What's more, he contends, historically speaking this was also true during the Great Depression and before the passage of Glass-Steagall.
The thesis of his paper is that although the explanation provided by the Roosevelt administration for the passage of Glass-Steagall was that the interests of the general public would be be better protected if banks were broken up into commercial and investment flavors, the truth is that the real power pushing the legislation was the Rockefeller family, attempting tout maneuver their great rivals, the House of Morgan. Rockefeller's banking interests, it is true, were hurt by Glass-Steagall, but not as much as Morgan's were. By raising the operating costs of its rival, Rockefeller profited....
Read entire article at Salon
Alex Tabarrok is a professor of economics at George Mason University. He co-authors the popular Marginal Revolution blog with Tyler Cowen, and he leans strongly libertarian (a point that his appearance in The Quarterly Journal of Austrian Economics underlines, as the publication is a standard-bearer for academic libertarian economics.)
Libertarians feel a bit under siege right now, while progressive leftwing bloggers feel their oats, interpreting every new headline from Wall Street as proof of the failure of the deregulatory wave set off by the Reagan revolution. As I noted earlier this week, we've been hearing a lot about the 1999 repeal of the Glass-Steagall Act lately, because for some pundits, it seems pretty easy to connect the dots between the demise of this landmark piece of Great Depression-era legislation and the explosion of bad behavior on Wall Street in recent years. Glass-Steagall broke up the banking industry by separating commercial banks from investment banks. Gramm-Leach-Bailey removed that restriction in 1999. Now, investment banks are dropping like flies, and a new era of super-banks, or, as Tabarrok refers to them, "unified" banks, appears to have begun. And it's all Gramm-Leach-Bailey's fault, cry the unrepentant New Deal regulators.
Tabarrok isn't having any of it. Last night, he blasted out a blog post arguing that "Many wise people are now recognizing that the repeal of Glass-Steagall was one of the few saving graces of the current crisis."
Tabarrok's argument is that without the repeal of Glass-Steagall, the beleaguered investment banks who are currently falling into the arms of commercial banks, such as Bank of America or JP Morgan Chase, would have nowhere to go. "Unified banks" he writes, are actually safer and more stable than their separated counterparts. What's more, he contends, historically speaking this was also true during the Great Depression and before the passage of Glass-Steagall.
The thesis of his paper is that although the explanation provided by the Roosevelt administration for the passage of Glass-Steagall was that the interests of the general public would be be better protected if banks were broken up into commercial and investment flavors, the truth is that the real power pushing the legislation was the Rockefeller family, attempting tout maneuver their great rivals, the House of Morgan. Rockefeller's banking interests, it is true, were hurt by Glass-Steagall, but not as much as Morgan's were. By raising the operating costs of its rival, Rockefeller profited....