The argument is made by the investment banks that repeal of the Glass-Steagall Act was important for US growth and economic prosperity, and that reimposition of Glass-Steagall rules would hamper the markets' recovery and our climb out of recession. OK, so what does history tells us about economic growth and market performance in the periods prior, and subsequent to, passage of the repeal of Glass-Steagall in 1999?
If we look at the twenty-five years before repeal of this act, we measure a 1,750 percent increase in the Dow, a 2,145 percent increase in the S&P and a 6,804 percent increase in the Nasdaq index.
In the more than one decade since Glass-Steagal was repealed, we have gotten a 9.7 percent decrease in the Dow, a 25 percent decrease in the S&P, and a 46 percent decrease in the NASDAQ.
GDP growth over the past thirty-five years would tell the same story. Indeed, its remarkable that, despite the usual business cycles, overall the twenty-five years preceding repeal of Glass-Steagall were characterized by such strong market and GDP performance, while the decade since Glass-Steagall was repealed has been characterized by a sputtering, if not stalled, economy and market that has simply failed to return for its investors.
Of course, coincidence does not prove causation, but the investment houses that say that a return to Glass-Steagall rules would damage the markets and our economic recovery should be compelled to defend that argument in the light of this historical data.
San Antonio, TX
Feb 3 2010 - 2:16pm