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Comment by maxerickson | Hacker News Reader

Goldman became a bank holding company so that they could access a fed emergency lending facility. Without that lending facility, they probably would have collapsed. They didn't hesitate to organize their new bank in a way that was profitable, but they didn't diversify to survive, they begged for a different legal classification so that they could get a big loan.

AIG collapsed because instead of a boring insurance company, it was a boring insurance company with a bunch of people trading crazy financial derivatives. Under Glass-Steagall, the insurance business wouldn't have been exposed to those derivatives.

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> Under Glass-Steagall, the insurance business wouldn't have been exposed to those derivatives.

Glass-Steagall was a law that regulated banks, i.e. financial institutions that accepted deposits. AIG would never have been covered by Glass-Steagall.

This is one reason I find the topic annoying: people ascribe all sorts of effects to Glass-Steagall that it did not actually do.

I know little about this topic. Can you please help me understand. Wikipedia says the act applies to banks and securities, https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legis...

I thought AIG provided securities. I'm sure I'm missing something obvious as it's not something I know anything about

Under federal law a bank is a financial institution that accepts deposits from consumers and businesses. If a financial institution is not accepting and holding deposits, it's not a bank. (This is greatly simplified but it's a key differentiator.)

Laws are targeted toward different types of financial institutions. Glass-Steagall was a law that applied to banks, and prevented them from selling securities.

But if a financial institution wasn't a bank, then Glass-Steagall did not apply to them. AIG did not hold deposits so it wasn't a bank. So no G-S.

Edit: to help connect the dots--what I'm referring to above are technically called "commercial banks."

https://en.wikipedia.org/wiki/Commercial_bank

From the G-S page: "The term Glass–Steagall Act usually refers to four provisions of the U.S. Banking Act of 1933 that limited commercial bank securities activities and affiliations within commercial banks and securities firms."

In general, different kinds of financial institutions are regulated by different regulatory agencies. This is as good a place to start as any:

https://en.wikipedia.org/wiki/Financial_regulation

Citations for either of these claims?

This sources seems to indicate that goldman's use of the discount window was absolutely minimal:

http://www.bloomberg.com/news/articles/2011-03-31/goldman-bo...

re: AIG, insurance companies were never regulated by Glass-Steagall

Back then, you could shop for your regulator. Often companies shopped for the most lax regulator. AIG purchased a tiny credit union and then got themselves to be regulated by the "Office of Thrift Supervision": https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision The wikipedia article has details on the other organizations who did this.

Should AIG have been regulated by a tiny 30-person regulator? You judge, here is AIG's credit presentation: http://www.aig.com/Chartis/internet/US/en/FinalConf_revised_... AIG had a 1/2 Trillion USD one-way unhedged credit default swap exposure, amongst other exposures.

Does this have anything to do with Glass-Steagall?

Goldman converted to a bank holding company for TARP.

https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#...

I'm think I'm wrong about AIG and don't feel like chasing it.

How could you conclude that given that many of the companies on that list are not bank holding companies?

TARP eligibility had nothing to do with being a bank holding company.

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