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News Link • Economy - Economics USA

Elizabeth Warren: Busted in The New York Times!

•, by Charles Goyette
 But it has, and since the column refutes what is probably the most repeated claim about the mortgage meltdown by foes of the free economy, it deserves attention.

The Glass-Steagall Banking Act, passed in 1933, was part of the Depression-era flood of federal regulations. Among its provisions was the creation of the Federal Deposit Insurance Act. This was actually a way of getting banks to become part of the Federal Reserve System since the deposit insurance it created gave member banks a competitive advantage over uninsured banks. It also provides a classic example of the counter-productivity of the regulatory mindset. FDIC insurance made customers virtually indifferent to the risks banks take with their deposits. What difference does it make how prudently a bank manages its portfolio, if the Federal government is guaranteeing its deposits?

Glass-Steagall also limited commercial banks from activities in the securities business. This separation of commercial banking from investment banking was repealed in 1999 in a bill signed by President Clinton. 

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