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There’s the old saw about the “repeal” of good ol’ Glass-Steagall again. The change in 1999 merely did away with restrictions on commercial banks and investment

by gbacon 8y ago

There’s the old saw about the “repeal” of good ol’ Glass-Steagall again. The change in 1999 merely did away with restrictions on commercial banks and investment banks being controlled by the same holding company. There were enormous moral-hazard problems for all banks, and that was induced by what were then only widely assumed bailout guarantees. I’m just a random guy on the Internet. Maybe you’ll believe WaPo[0]. But why let facts get in the way of a good screenplay? Facts such as that Bear Stearns, Lehman Brothers and Merrill Lynch — three institutions at the heart of the crisis — were pure investment banks that had never crossed the old line into commercial banking. The same goes for Goldman Sachs … The infamous AIG? An insurance firm. New Century Financial? A real estate investment trust. No Glass-Steagall there. Two of the biggest banks that went under, Wachovia and Washington Mutual, got into trouble the old-fashioned way – largely by making risky loans to homeowners. Bank of America nearly met the same fate, not because it had bought an investment bank but because it had bought Countrywide Financial, a vanilla-variety mortgage lender. [0]: https://www.washingtonpost.com/lets-shatter-the-myth-on-glass-steagall/2012/07/27/gJQASaOAGX_story.html https://www.washingtonpost.com/lets-shatter-the-myth-on-glas...

snowwrestler 8y ago
Yes. There's also the fact that institutions that would have violated Glass-Steagall, like JP Morgan Chase and USAA, came through the financial crisis better than pure investment banks. And one of the tactics to help stop the crisis was to allow remaing investment banks to convert to bank holding companies that accept deposits--which would have also violated Glass-Steagall. And that Europe didn't have a regulation like Glass-Steagall, yet the crisis didn't start in Europe, it started in the U.S.
blihp 8y ago
Part of what Glass-Steagall prevented was banks from dealing/investing/underwriting in non-governmental securities or affiliating with those who do[1]. Seems to me that this would have gone a long way to preventing a lot of the insane repackaging of the toxic garbage alongside the more reasonable debt. Am I incorrect in believing that the securitization of mortgage debt and related instruments like default swaps and other derivatives could not have occurred with that firewall in place? Granted, there were still the problems that Fannie Mae and Freddie Mac created (not from their initial purpose, but rather what they morphed into) but it seems the problem would have remained much more contained, more obvious earlier, and with less leverage. [1] https://en.wikipedia.org/wiki/Glass-Steagall_legislation https://en.wikipedia.org/wiki/Glass-Steagall_legislation

by gbacon 8y ago

snowwrestler 8y ago

Yes. There's also the fact that institutions that would have violated Glass-Steagall, like JP Morgan Chase and USAA, came through the financial crisis better than pure investment banks. And one of the tactics to help stop the crisis was to allow remaing investment banks to convert to bank holding companies that accept deposits--which would have also violated Glass-Steagall. And that Europe didn't have a regulation like Glass-Steagall, yet the crisis didn't start in Europe, it started in the U.S.

blihp 8y ago

Part of what Glass-Steagall prevented was banks from dealing/investing/underwriting in non-governmental securities or affiliating with those who do[1]. Seems to me that this would have gone a long way to preventing a lot of the insane repackaging of the toxic garbage alongside the more reasonable debt. Am I incorrect in believing that the securitization of mortgage debt and related instruments like default swaps and other derivatives could not have occurred with that firewall in place? Granted, there were still the problems that Fannie Mae and Freddie Mac created (not from their initial purpose, but rather what they morphed into) but it seems the problem would have remained much more contained, more obvious earlier, and with less leverage. [1] https://en.wikipedia.org/wiki/Glass-Steagall_legislation https://en.wikipedia.org/wiki/Glass-Steagall_legislation