No Mumbo, Plenty of Jumbo: Language in the Gramm-Leach-Bliley Act

I finally got around to doing something I’ve been meaning to do for over a year: look up the exact text of the Gramm-Leach-Bliley Act, which (among other things) repealed banking safeguards put in place by the Depression-era Glass Steagall Act.

I figured I’d be up to my armpits in unintelligible legal speak in which the actual “repealing” was couched in incomprehensible terms. Boy, was I surprised:

From the first section of the Gramm-Leach-Bliley Act, titled “Glass-Steagall Act Repeals”:

Here’s the language:
“Section 20 repealed”
“Section 32 repealed”

Section 20 of Glass-Steagall said that banks can’t get involved in securities trading. (From what I understand, the authors thought banks’ playing with stocks and bonds was too risky and helped lead to the Great Depression.) Section 32 said that no bank officer could be officer in a securities-trading company.

In other words, leaders thought it was a bad idea to let banks, which hold depositors’ money, use that money to speculate on stocks and other yet-to-be-invented securities. By 1999, three congressmen -- Gramm, Leach and Bliley -- decided that, on the contrary, it was a good idea.

Something Everyone Should Know About the Financial Crisis

I realize that people don't come to this blog for public policy analysis. But yesterday, while getting my taxes done, it came to my attention that my very intelligent and well-informed accountant didn't know an important piece of history regarding our economic situation. So I thought I'd use a normally blog-post-free Sunday to pass along the info.

Here it is.

In 1933, Congress passed the Glass-Steagall Act, which limited the types of investments commercial banks could make. According to Investopedia, the act's proponents argued that the law was needed because "commercial banks took on too much risk with depositors' money." They believed that these risks led to the Great Depression.

In 1999, legislation introduced by Republican Phil Gramm and referred to as Gramm-Leach-Bliley repealed those provisions of Glass-Steagall.