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This can really be traced back to the repeal of Glass Steagal. After the great depression in the 30s, congress passed the Glass Steagal act, which put a firewa

This can really be traced back to the repeal of Glass Steagal. After the great depression in the 30s, congress passed the Glass Steagal act, which put a firewall between investment banks and commercial banks. In other words, Wall Street investment banks could no longer gamble with customer deposits. This seems like common sense, and all of the financial problems actually occurred after Glass Steagal was repealed in the 90s. It seems fairly obvious in hindsight that Glass Steagal was good legislation. It led to a 60+ year period of extended prosperity, and the greatest economy in the world. Once it was repealed, it set us up for a global financial crisis a decade later.

ktRolster 11y ago
>This can really be traced back to the repeal of Glass Steagal. The evidence against this hypothesis is that Canada did not have Glass Steagal (or legislation similar to it), and yet they were not harmed by the financial crisis nearly as much. The banks were smart enough to not invest so deeply in mortgage backed securities.
- ajlburke 11y ago
  Canadian banks have generally been much more regulated than US ones. Through the 90s and early 2000s they constantly complained about too much government regulation getting in the way of their profits etc. - they seem to have shut up about that since 2008.
- badsock 11y ago
  They weren't smart enough. They were prevented by government regulation introduced in the 1990s.
- tosseraccount 11y ago
  Canada does not have personal residence mortgage deductibility and was riding a commodities boom at the time. Speaking of the popular "austerity ruins the economy", Canada ran a budget surplus during the crisis, enabling them to weather the financial crisis quite well. Keeping an eye on the accounting books is always a good idea.
  - RobertoG 11y ago
    OK, I propose we change the popular "austerity ruins the economy" to the most precise "austerity ruins an economy, if it's not ridding a commodities boom at the time, and you don't have a private debt grow for compensating what the government is not spending."
  - cmrdporcupine 11y ago
    We did not run a budget surplus during the crisis. Far from it. There was extensive stimulus spending that led to very high deficits during that period. We had a budget surplus in the decade prior to the crisis, but not right before, and once the Harper gov't took power it slashed revenue through a bunch of tax cuts and then once the crisis hit the opposition demanded stimulus spending or it would bring the gov't down (minority parliament at the time). And while Canada was "riding a commodity boom" at the time this hardly helped anybody east of Saskatchewan or west of Alberta. You could argue it helped their investments but you'd also be wrong, in 2008 the stock market tumbled the same here as everyone else, including energy stocks.
    - cmrdporcupine 11y ago
      And I should add that housing prices did dip briefly immediately following the crash in the US. Just not nearly as bad and they almost immediately recovered.
    - tosseraccount 11y ago
      http://www.tradingeconomics.com/canada/government-budget http://www.tradingeconomics.com/canada/government-budget According to this link, the Canada Federal Budget appears to have been in surplus during 2007-2008 crisis. Deficits came later. Their previous fiscal prudence mitigated the problems that struck Italy, Greece and the United States.
      - cmrdporcupine 11y ago
        The stimulus budget was passed in 2009, the bulk of the spending came through in 2010, and the graph you linked to shows that. Cutting your tax revenue isn't fiscal prudence. It's letting ideology triumph over reality. Harper never met a surplus he didn't throw away.
theseatoms 11y ago
I agree that this is the heart of the issue. And the American people are about to elect back into the White House the couple that presided over the repeal of the Glass Steagal Act. So much for learned lessons.
- illumin8 11y ago
  To be fair, Clinton only signed the law - it was created and voted for by a Republican majority congress. Look at the votes - every Republican senator voted Yea and only one Democrat voted Nay: https://www.govtrack.us/congress/votes/106-1999/s105 https://www.govtrack.us/congress/votes/106-1999/s105 He still shouldn't have signed it, but to blame this law on the Clintons is really not being honest.
  - guelo 11y ago
    That's not the final vote. It passed 90-8 in the senate and 362-57 in the house. https://www.govtrack.us/congress/votes/106-1999/s354 https://www.govtrack.us/congress/votes/106-1999/s354 https://www.govtrack.us/congress/votes/106-1999/h570 https://www.govtrack.us/congress/votes/106-1999/h570
    - illumin8 11y ago
      Thanks for the correction.
JumpCrisscross 11y ago
> This can really be traced back to the repeal of Glass Steagal Can it? Because none of the banks who initially failed would have been firewalled by Glass-Steagal. Bear Stearns, Lehman Brothers, AIG...none of these were deposit-taking institutions. The problem erupted from corn-fed mortgages, something Glass-Steagall wouldn't have saved us from. This isn't just my opinion. Most economists see Gramm-Leach-Bliley (the Act that repealed Glass-Steagall) as having had a minor effect, at most, on the 2008 financial crisis [1]. [1] http://www.npr.org/sections/thetwo-way/2015/10/14/448685233/fact-check-did-glass-steagall-cause-the-2008-financial-crisis http://www.npr.org/sections/thetwo-way/2015/10/14/448685233/...
- cm2187 11y ago
  And if we look at the UK, all the banks that failed (RBS, HBOS, Northern Rock) failed because of their bad loans or over-reliance on short-term funding, not because of investment banking activities.
  - deepnet 11y ago
    I disagree. The RBS failed entirely because of foolish investments. Funding covered the cracks till it dried up. Fred the Shred (RBS CEO) invested billions in toxic assets worldwide - his last act was to buy an investment bank full of them. He still walked away with bonuses, though now the taxpayer paid for his golden parachute.
- pyre 11y ago
  AIG wasn't a bad, but an insurance company that failed because it took on too much risk. If, for example, AIG was that only one to fail I'm not sure it would have taken down the economy with it. I see them as someone that got embroiled in the "sub-prime mortgage crisis", but not necessarily a perpetrator (unless I'm missing something).
  - illumin8 11y ago
    AIG insured the mortgage backed securities that caused the crisis.

ktRolster 11y ago

>This can really be traced back to the repeal of Glass Steagal. The evidence against this hypothesis is that Canada did not have Glass Steagal (or legislation similar to it), and yet they were not harmed by the financial crisis nearly as much. The banks were smart enough to not invest so deeply in mortgage backed securities.

ajlburke 11y ago
Canadian banks have generally been much more regulated than US ones. Through the 90s and early 2000s they constantly complained about too much government regulation getting in the way of their profits etc. - they seem to have shut up about that since 2008.
badsock 11y ago
They weren't smart enough. They were prevented by government regulation introduced in the 1990s.
tosseraccount 11y ago
Canada does not have personal residence mortgage deductibility and was riding a commodities boom at the time. Speaking of the popular "austerity ruins the economy", Canada ran a budget surplus during the crisis, enabling them to weather the financial crisis quite well. Keeping an eye on the accounting books is always a good idea.
- RobertoG 11y ago
  OK, I propose we change the popular "austerity ruins the economy" to the most precise "austerity ruins an economy, if it's not ridding a commodities boom at the time, and you don't have a private debt grow for compensating what the government is not spending."
- cmrdporcupine 11y ago
  We did not run a budget surplus during the crisis. Far from it. There was extensive stimulus spending that led to very high deficits during that period. We had a budget surplus in the decade prior to the crisis, but not right before, and once the Harper gov't took power it slashed revenue through a bunch of tax cuts and then once the crisis hit the opposition demanded stimulus spending or it would bring the gov't down (minority parliament at the time). And while Canada was "riding a commodity boom" at the time this hardly helped anybody east of Saskatchewan or west of Alberta. You could argue it helped their investments but you'd also be wrong, in 2008 the stock market tumbled the same here as everyone else, including energy stocks.
  - cmrdporcupine 11y ago
    And I should add that housing prices did dip briefly immediately following the crash in the US. Just not nearly as bad and they almost immediately recovered.
  - tosseraccount 11y ago
    http://www.tradingeconomics.com/canada/government-budget http://www.tradingeconomics.com/canada/government-budget According to this link, the Canada Federal Budget appears to have been in surplus during 2007-2008 crisis. Deficits came later. Their previous fiscal prudence mitigated the problems that struck Italy, Greece and the United States.
    - cmrdporcupine 11y ago
      The stimulus budget was passed in 2009, the bulk of the spending came through in 2010, and the graph you linked to shows that. Cutting your tax revenue isn't fiscal prudence. It's letting ideology triumph over reality. Harper never met a surplus he didn't throw away.

theseatoms 11y ago

I agree that this is the heart of the issue. And the American people are about to elect back into the White House the couple that presided over the repeal of the Glass Steagal Act. So much for learned lessons.

illumin8 11y ago
To be fair, Clinton only signed the law - it was created and voted for by a Republican majority congress. Look at the votes - every Republican senator voted Yea and only one Democrat voted Nay: https://www.govtrack.us/congress/votes/106-1999/s105 https://www.govtrack.us/congress/votes/106-1999/s105 He still shouldn't have signed it, but to blame this law on the Clintons is really not being honest.
- guelo 11y ago
  That's not the final vote. It passed 90-8 in the senate and 362-57 in the house. https://www.govtrack.us/congress/votes/106-1999/s354 https://www.govtrack.us/congress/votes/106-1999/s354 https://www.govtrack.us/congress/votes/106-1999/h570 https://www.govtrack.us/congress/votes/106-1999/h570
  - illumin8 11y ago
    Thanks for the correction.

JumpCrisscross 11y ago

> This can really be traced back to the repeal of Glass Steagal Can it? Because none of the banks who initially failed would have been firewalled by Glass-Steagal. Bear Stearns, Lehman Brothers, AIG...none of these were deposit-taking institutions. The problem erupted from corn-fed mortgages, something Glass-Steagall wouldn't have saved us from. This isn't just my opinion. Most economists see Gramm-Leach-Bliley (the Act that repealed Glass-Steagall) as having had a minor effect, at most, on the 2008 financial crisis [1]. [1] http://www.npr.org/sections/thetwo-way/2015/10/14/448685233/fact-check-did-glass-steagall-cause-the-2008-financial-crisis http://www.npr.org/sections/thetwo-way/2015/10/14/448685233/...

cm2187 11y ago
And if we look at the UK, all the banks that failed (RBS, HBOS, Northern Rock) failed because of their bad loans or over-reliance on short-term funding, not because of investment banking activities.
- deepnet 11y ago
  I disagree. The RBS failed entirely because of foolish investments. Funding covered the cracks till it dried up. Fred the Shred (RBS CEO) invested billions in toxic assets worldwide - his last act was to buy an investment bank full of them. He still walked away with bonuses, though now the taxpayer paid for his golden parachute.
pyre 11y ago
AIG wasn't a bad, but an insurance company that failed because it took on too much risk. If, for example, AIG was that only one to fail I'm not sure it would have taken down the economy with it. I see them as someone that got embroiled in the "sub-prime mortgage crisis", but not necessarily a perpetrator (unless I'm missing something).
- illumin8 11y ago
  AIG insured the mortgage backed securities that caused the crisis.