Please remember, in reading explanations of this, that the entire financial industry has a vested interest in complicating what they do to the average person.

Please remember, in reading explanations of this, that the entire financial industry has a vested interest in complicating what they do to the average person. The basic theory of Glass-Steagall is to separate risk-taking in finance with the "mundane," finance, as Krugman was saying. On one side of the coin in finance, you have the boring finance: home loans, small business loans, that day-to-day stuff is not complicated and is necessary service to the economy. By the way, we can't let these banks "fail," or go out of business. That would cause economic destruction beyond what is reasonable. Fortunately, this type of banking is not very risky, either. Now, you have the other side of banking, which involves risk-taking. Some of this is stuff such as investment banking and private equity which is actually very necessary for efficient allocation of resources. These types of businesses need to be allowed to fail, though, since not letting them fail would be a redistribution of wealth from the taxpayer to the rich, and it would also mean people who are not good at efficiently allocating resources get to keep their jobs while smart people who can do it better, get crowded out by the politics of government handouts. Also on the risk-taking side of finance you have securitization and a lot of "financial alchemy," stuff. Fannie Mae and Freddie Mac arguably even fall in this category. This side of finance needs to also be allowed to fail for the same reasons. I hope that makes sense. I recommend picking up an intro and intermediate-level macroecon textbooks for further reading.