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John Steel Gordon: A Short Banking History of the United States
By JLP | October 10, 2008
Here’s an interesting read from this morning’s Wall Street Journal: A Short Banking History of the United States (free).
Some interesting quotes from the Gordon piece:
The reorganization of the Federal Reserve and the creation of the Federal Deposit Insurance Corporation hugely reduced the number of bank failures and mostly ended bank runs. But there remained thousands of banks, along with thousands of savings and loan associations, mutual savings banks, and trust companies. While these were all banks, taking deposits and making loans, they were regulated, often at cross purposes, by different authorities. The Comptroller of the Currency, the Federal Reserve, the FDIC, the FSLIC, the SEC, the banking regulators of the states, and numerous other agencies all had jurisdiction over aspects of the American banking system.
The system was stable in the prosperous postwar years, but when inflation took off in the late 1960s, it began to break down. S&Ls, small and local but with disproportionate political influence, should have been forced to merge or liquidate when they could not compete in the new financial environment. Instead Congress made a series of quick fixes that made disaster inevitable.
In the 1990s interstate banking was finally allowed, creating nationwide banks of unprecedented size. But Congress’s attempt to force banks to make home loans to people who had limited creditworthiness, while encouraging Fannie Mae and Freddie Mac to take these dubious loans off their hands so that the banks could make still more of them, created another crisis in the banking system that is now playing out.
I’m still a beginning student when it comes to financial history but I find it fascinating. To find out more about John Steel Gordon, check out his website.
Topics: Economics |
October 10th, 2008 at 11:17 am
The idea that Fannie Mae and Freddie Mac were investing in huge numbers of sub-prime loans is a myth. They had fewer such loans than many banks and mortgage companies, and started giving out sub-prime loans later than many other institutions. I’m sick and tired of this myth continuing, especially as it’s usually used to blame the poor (and especially minorities) for the sub-prime meltdown. Yes, many poor people did take out sub-prime mortgages they shouldn’t have - but they weren’t the ones buying 3/4 of a million dollar McMansions in CA suburbs, nor the ones creating, marketing and approving these loans - they’re not the entire cause of this crisis. Furthermore, urban poor and minorities have been experiencing a foreclosure crisis for the past decade - which was conveniently ignored until the middle and upper-middle class started experiencing problems too.
Perhaps you could do a bit of due diligence and look at more than one source for your ‘financial history’.
October 10th, 2008 at 11:22 am
I don’t think he’s blaming the poor and minorities for the subprime meltdown.
October 10th, 2008 at 11:23 am
Eden said:
“Perhaps you could do a bit of due diligence and look at more than one source for your ‘financial history’.”
PLEASE!
October 10th, 2008 at 11:35 am
I think you’ll find Rothbard’s History of Money and Banking in the United States to be a much better history. Link below: http://www.mises.org:80/store/History-of-Money-and-Banking-in-the-United-States–P191.aspx
Best,
Wes Baker
Anniston, Alabama