Stock Market Today

The Dow Jones Industrials fell over 200 points today. This is a typical stock market over-reaction to a not so news- worthy event. The event was our President remarking that commercial banking business should be separate from investment services business. There is a lot of good argument for the separation and it actually stems from the reasoning offered during the Great Depression. This led to the Glass-Steagall Act.  Business_Finance_14004Under the President Clinton administration, the act was repealed after approximately 60 years of having it on the books. So, in a sense, Glass-Steagall may be brought back in a different form. It should be noted Dr. Volker, former Chairperson of the Federal Reserve (including during President Reagan’s term in office) and advisor to President Obama, support this separation.

Additionally, banks have always had the ability to circumvent financial regulations. Often this is done through bank holding companies. Bank holding companies are able to offer investment services. So, this formality of limiting commercial banking will help the financial system stablize, it will not, however, prevent banks from engaging in profit seeking financial innovation. Financial innovation is on-going. Financial innovation is simply the creation of new financial instruments and services, often initially circumventing financial regulations.

Please be mindful of the following. When the stock market over-reacts, the investor should under-react.

About George Jouganatos, Ph.D.

Professor of economics for over 18 years, taught economics, finance, and quantitative analysis at UC Davis and Santa Cruz, California State University, Sacramento, and University of San Francisco. Has written many economic impact, efficiency, cost, and feasibility studies; designed economic models, strategic plans, and performance measures. Has written and conducted seminars in the field of economics of development, political economy, economic history, environmental economics, public policy, operational analysis, and economic modeling and forecasting. Over 25 years of consulting services providing economic and statistical analysis for the private and public sectors. Specialties include, but not limited to, personal injury, wrongful death, wrongful termination, housing discrimination, employment discrimination, economic loss, business valuations, lost profits, divorce, general economic and public finance issues. Consultation and testimony for numerous attorneys in California, New York, Nevada, Iowa, Montana, British Columbia, Oregon, New Mexico, and Hawaii. Expert witness and article contributor for www.ForensisGroup.com

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