This is the first part of a syndicated three-part series by contributor Stevie Wilson.
This topic might seem way out of whack with what I usually cover but if you take a few minutes and sift through some of the topics I have covered in the last two years, you will see blogs featuring venture capital, start-ups, business leaders in So. California that are geared toward entrepreneurial growth as well as people in banking, finance, emerging technology, real estate, education, security on your computer and mobile devices for both business and personal use. What do all these have in common? Often it’s money and the local, state, national and global economy has a big effect on what goes when it comes to launching emerging technologies which comes out of both start-ups and education as well as people who believe in those technologies.
Why this topic? Considering the economic situation that the country has endured since 2007, it’s been a real eye-opener for the country as a whole where the only people who remembered what the Great Depression was were historians or US History majors and most senior citizens were born after the 1929 Stock Market Crash that catapulted the country into a 10 year episode known as the Great Depression. Black Thursday that triggered one of the most (if not the most) serious financial event in US history, lost 11% of the stock value in that one day. After the fall continued from late October on, the country had such a down-turn that it had an impact on national and global economies. Whether it was the stock market crash that lead to the Depression or President Herbert Hoover and the loose credit policies of that time. The only real change came in 1932, when the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The following year, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities. History lesson over.
Let’s fast-forward to the Democratic National Convention of 2012 and President Clinton speaking about breaking up the big banks or as the Fed likes to refer to them as “Banks Too Big to Fail” AKA BTBF. In the course of my research on this topic, someone sent me an essay coming from the Dallas Fed about the same topic, recommending that the BTBF be broken up into smaller banks and splitting them into separate commercial banks and savings and loans. (Sound familiar here to anyone?) Given that the one-day crash of Black Monday, October 19, 1987, when the Dow Jones Industrial Average fell 22.6%, was worse in percentage terms than any single day of the 1929 crash. Again this was due to many factors and UCLA Anderson School of Business (among other sources) had been forecasting the burst of the lending bubble particularly here in California for more than 3 years– and yet nothing substantive was done until it was too late. What’s interesting is that moniker that the Banks Too Big to Fail were anything but that. They thought themselves invincible and yet those banks and their leaders not only failed financially in every sector, for many they failed their customers and their investors ethically. The consumers — you and me– were left to bail them out. So much for TBTF!
So for those who got hurt (and most of us did) in this closest thing to the Great Depression, this is a time to think about this topic since not only has a past president brought it up but a segment that represents big banks and the financial companies aka THE FED had the put together a serious essay complete with diagrams and graphics that someone sent me to read. WOW!
Just a note here: this post does not have a political agenda. It’s a financial agenda. The question is about if breaking up the big banks is a wise move for our economy (and let it filter out to the global economy). I managed to finagle a couple of interviews with 2 distinctly different people to provide insight into this situation. The economy is what it is. The situation has been building going back into the Reagan years so there’s no one administration that can be blamed. Let’s just look at if this is an answer and worthwhile thing to do.
Fred Shaffer is on podcast– 2 podcasts because we spoke so long and he cast light on things that cleared up my confusion (and maybe will clear up yours too!). Look for part 2 later on Wednesday. There is another segment in this series which is running tomorrow.
Fred Shaffer is the managing partner of GTO Development.
His career includes significant accomplishment in real estate investment, mortgage finance and capital markets securitization and trading. Over the last fifteen years, Fred has started and managed several real estate related businesses in Los Angeles which invested in and developing residential and commercial property. During that time Fred’s companies invested in over 100 properties, developed, constructed and/or sold over 400 residential units with a completed market value of approximately $300 million.
Fred has broad experience in all aspects of real estate investment and development, including acquisition, debt and equity financing, project design, entitlement, construction, property management and marketing property for sale or rent.
The original post “Breaking Up the Big Banks: Will that Solve the Economic Situation or Not? Financial Expert, Fred Shaffer Podcast!” by Stevie Wilson was originally posted on the LA Story website.