Bring Back Glass Steagall

We at The Small Business Authority believe in free markets. We also believe in less government regulation to more government regulation and we believe that financial institutions should be able to transact on an arm’s length basis and do so in many different markets. The primary caveat to this is when the financial institution uses a government guarantee or a government subsidy, it must therefore be very limited to the amount of risk and financial leverage that it can utilize to earn money.

After listening to three straight days of talking heads and pundits pondering over JP Morgan, it is important to get down to a very simple diagram and whiteboard explanation of why banks should not be allowed to participate in markets that have a connection with any kind of excessive risk taking. Technically, there is no difference between a bank taking FDIC insurance to guarantee its deposits with Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac also issued quasi-government guaranteed debt and engaged in excessive risk taking on the asset side of its balance sheet.

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