A BRIEF HISTORY OF TIME & MORTGAGES
In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, Congress passed a law known as the Glass-Steagall Act in order to safeguard the Country from repeating another Great Depression!
This law separated investment and commercial banking activities. At the time, “improper banking activity,” or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors’ money.
The Glass–Steagall Act describes the four provisions of the U.S. Banking Act of 1933 that limited securities, activities, and affiliations within commercial banks and securities firms. This law acted as a firewall that protected the American People against “improper banking activities” for 70 years and made what the banks are doing today a felony!
The Glass–Steagall separation of commercial and investment banking prevented commercial Federal Reserve member banks from:
- Dealing in non-governmental securities for customers
- Investing in non-investment grade securities for themselves
- Underwriting or distributing non-governmental securities
- Affiliating (or sharing employees) with companies involved in such activities
Conversely, Glass–Steagall prevented securities firms and investment banks from taking deposits.
The law gave banks one year after the law was passed on June 16, 1933 to decide whether they would be a commercial bank or an investment bank. They could be one or the other, but not both.
There were several “loopholes” that regulators and financial firms were able to exploit during the lifetime of Glass–Steagall restrictions. Neither savings and loans nor state-chartered banks that did not belong to the Federal Reserve System were restricted by Glass–Steagall. Glass–Steagall also did not prevent securities firms from owning such institutions.
So, starting in the 1960’s banks began chipping away at the Glass–Steagall Act. Unfortunately, it would only be a matter of time before the Wall Street bankers would find a way to overcome the Glass–Steagall Act.
Then in 1999 it finally happened; and the last thing that Congress did before they went on Christmas break in 1999 was repeal the Glass–Steagall Act. This gave the banks the number one thing on their Christmas wish list.
Now with Glass-Steagall out of the way the banks would be able to convert our mortgages into Mortgage Backed Securities (MBS) that could be sold and traded on Wall Street. Coincidentally once the Glass–Steagall Act was repealed it only took eight short years for the banks to nearly crash the entire economy again. Except this time the banks engineered an sinister plan to profit from the economic ruin they were going to create!