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A Crisis of Value

This book explains the fundamental causes of the bank's failure, including the inadequacy of the regulatory and supervisory framework. For some, it was the repeal of the Glass-Steagall Act that was the overriding cause, not just of the collapse of Lehman Brothers, but of the financial crisis as a whole. The book argues that the cause is partly to be found both in weak and ineffective regulation and also in a programme of regulation and supervision that was simply not fit for the purpose. Lehman Brothers' long history began with three brothers, immigrants from Germany, who sold selling groceries and dry goods to local cotton farmers. Dick Fuld, the chairman and CEO, and his senior management, ignored the increased risks, choosing to rely on over-valuations of the firm's assets. The book examines the regulation of the Big Five investment banks in the context of the changes which took place in the structure of banking after the repeal of the Glass-Steagall Act. It describes the introduction of the European Union's Consolidated Supervision Directive in 2004. The book examines the whole issue of valuing Lehman's assets and details the regulations covering appraisals and valuations of real estate, applicable at the time and to consider Lehman's approach in the light of these regulations. It argues that that the valuation of Lehman's real estate assets was problematic to say the least, as the regulators did not require the investment banks to adopt a recognized methodology of valuation, and that Lehman's own methods were flawed.

Oonagh McDonald

4 Regulating the ‘Big Five’ This chapter will examine the regulation of the Big Five investment banks in the context of the changes which took place in the structure of banking after the repeal of the Glass-Steagall Act and the introduction of the European Union's Consolidated Supervision Directive in 2004. Immediately after the financial crisis, various reasons were found for the failure of so many banks, and indeed for the collapse of Lehman Brothers. This is despite the obvious fact that the major investment banks were

in Lehman Brothers
Harry Blutstein

supermarket that provided a full range of products and services to clients, wherever they were in the world­– ­a strategy destined to make CitiBank the largest in the world. His success, however, would depend on scything through the thicket of regulations that stood in his way. None galled him more than the Glass-­Steagall Act passed by the US Congress in 1933. A reaction to the speculative fever that led to the Great Depression, it separated commercial banks, which the law’s authors believed should offer a safe haven for mum-­and-­dad depositors, from investment banks

in The ascent of globalisation
Oscar Ugarteche Galarza

true nature of the catastrophe and the slowest to counter its effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of the market economy itself still escaped them (TGT: 21). After 1934, with the Glass Steagall Act, re-regulation re-embedded the US financial sector, introduced the dollar/gold standard and terminated the gold standard. 103 DESAI 9781526127884

in Karl Polanyi and twenty-first-century capitalism

Karl Polanyi (1886–1964) returned to public discourse in the 1990s, when the Soviet Union imploded and globalization erupted. Best known for The Great Transformation, Polanyi’s wide-ranging thought anticipated twenty-first-century civilizational challenges of ecological collapse, social disintegration and international conflict, and warned that the unbridled domination of market capitalism would engender nationalist protective counter-movements. In Karl Polanyi and Twenty-First-Century Capitalism, Radhika Desai and Kari Polanyi Levitt bring together prominent and new thinkers in the field to extend the boundaries of our understanding of Polanyi's life and work. Kari Polanyi Levitt's opening essay situates Polanyi in the past century shaped by Keynes and Hayek, and explores how and why his ideas may shape the twenty-first century. Her analysis of his Bennington Lectures, which pre-dated and anticipated The Great Transformation, demonstrates how Central European his thought and chief concerns were. The next several contributions clarify, for the first time in Polanyi scholarship, the meaning of money as a fictitious commodity. Other contributions resolve difficulties in understanding the building blocks of Polanyi's thought: fictitious commodities, the double movement, the United States' exceptional development, the reality of society and socialism as freedom in a complex society. The volume culminates in explorations of how Polanyi has influenced, and can be used to develop, ideas in a number of fields, whether income inequality, world-systems theory or comparative political economy. Contributors: Fred Block, Michael Brie, Radhika Desai, Michael Hudson, Hannes Lacher, Kari Polanyi Levitt, Chikako Nakayama, Jamie Peck, Abraham Rotstein, Margaret Somers, Claus Thomasberger, Oscar Ugarteche Galarza.

Robert Chernomas
Ian Hudson
, and
Mark Hudson

firms’ behavior became more widely accepted during this period. In the early stages of the post-war period, regulation was fairly limited, often to sectors with strategic importance, as was the case with the Glass Steagall Act, which restricted the activities of the banking industry to avoid a repeat of the 1929 crash. As the postwar period progressed, regulation became an increasingly salient feature of the economy. During the early 1970s, for example, both the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) were

in Neoliberal lives
Abstract only
Susan Strange

, this means that turning points or benchmarks in the system are as likely to be non-decisions and failures to act as they are to be active, conscious decisions. For example, in the above case of the securities houses, the other necessary condition was a chink in the American regulatory system. Innovations 37 This allowed these securities firms to operate insured non-banks under national or state charters, effectively giving them a licence to operate as sources of credit as if they were banks. The New Deal legislators who had drafted the famous Glass-Steagall Act of

in Mad Money
Abstract only
Susan Strange

Corporation (FDIC) – which guaranteed deposits up to $10,000 (now raised to $100,000) against bank failure. Meanwhile, by the Glass–Steagall Act of 1933, commercial banks were not allowed 110 Casino capitalism to operate across state borders. Thus, the Bank of America based in San Francisco could operate in California, but not in New York. Conversely Chase Manhattan was excluded from California, and Continental Illinois confined to that state. The idea was to prevent a concentration of financial power and also to leave responsibility for supervision and discipline with

in Casino Capitalism
Mike Buckle
John Thompson

fairly restrictive bank legislation, such as single-state operations, which remained characteristic of the US banking scene until quite recently. Another regulation imposed at this time was the Glass–Steagall Act, which effectively prohibited commercial banks from investment banking activities, such as trading on their own account and underwriting issues of securities. Broadly speaking, there

in The UK financial system (fifth edition)
An introduction to the book
Colin Coulter

the political programmes to which Fukuyama and Giddens have given their names should have often proved virtually indistinguishable in practice. The principal political manifestations of the ‘third way’ project were of course the Clinton Presidency in the United States and the ‘New Labour’ government in the United Kingdom. These overlapping administrations saw the implementation of policies that were neoliberal in all but name. It was, after all, Bill Clinton who repealed the Glass Steagall Act and placed in its stead the Financial Services Modernization Act

in Ireland under austerity