Banking victims

To the Editor:

The primary cause of the 1930s Great Depression was the speculation by commercial banks in the stock market. Because of these abuses by banks, legislation was enacted in 1933 known as the Glass-Steagall Act to erect a barrier between investment and commercial banking.

That act was wrongly repealed in 1999 when President Bill Clinton signed the legislation to deregulate the banking industry, allowing the banks once again to police themselves.

By the end of 2015, the four largest investment banks in New York created derivatives of $186.6 trillion. A derivative is an agreement between two parties to pay each other money depending on the performance of some other underlying asset, such as a bond. Large scale trading in derivatives is risky for these banks due to defaults.

Massive derivative losses by these banks will allow them to use deposits to offset losses. This is known as a bail-in, and depositors can be wiped out. The Glass-Steagall Act must now be reenacted to prevent Wall Street from creating of a new class of victims.

Robert A. Dahlquist

Orange, Calif.

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