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All of the activity you described here was legal under Glass-Steagall. Mortgage-backed securities have existed for over 50 years. Glass-Steagall separated com

All of the activity you described here was legal under Glass-Steagall. Mortgage-backed securities have existed for over 50 years. Glass-Steagall separated commercial banking from investment banking. The movie Margin Call depicts an investment bank that sells mortgage-backed securities. I don’t remember anything in the movie about commercial banking.

Vt71fcAqt7 4y ago
Any more info on this? I'd like to read more.
photochemsyn 4y ago
Indeed, but how about derivatives market for mortgage-backed securities? That was created by the abolition of Glass-Steagall. Heavily promoted by 'ol Alan Greenspan at the time, wasn't it? Free-market deregulation ideology in the name of international competitiveness was how it was sold as I recall.
- fshbbdssbbgdd 4y ago
  Credit default swaps and collateralized debt obligations also predate the repeal of Glass-Steagall. I think Glass-Steagall got somewhat mythologized after the financial crisis, because there was a desire to hold related political figures responsible. It meant that people who endorsed the repeal had their fingerprints on the Great Recession. There’s some truth to the claim - Lehman was both an investment bank and a commercial bank, so it wouldn’t exist in its final form without Glass-Steagall repeal. Lehman’s demise didn’t seem to be closely related to its commercial banking activity, but that increased the blast radius. Neither AIG nor Bear Stearns did commercial banking at all.
  - ckw 4y ago
    The people who endorsed the repeal also successfully fought back attempts to regulate the OTC derivatives market, which arguably lead to the Great Recession. See https://en.m.wikipedia.org/wiki/Brooksley_Born#Born_and_the_OTC_derivatives_market https://en.m.wikipedia.org/wiki/Brooksley_Born#Born_and_the_...
  - conductr 4y ago
    Sure they existed but I always felt like the Glass-Steagall kept things separate enough and things really blew up when you had the banks merging with investment banks. They then had the mortgage product pipeline and the derivatives instruments to offload them. The guys who exploded did so because they were over leveraged and could not cover the margin call when the market dipped. Oh and also didn’t get a bail out, they were just instantly insolvent. I’ve slept since then but that’s how my brain seems to remember it.

Vt71fcAqt7 4y ago

Any more info on this? I'd like to read more.

photochemsyn 4y ago

Indeed, but how about derivatives market for mortgage-backed securities? That was created by the abolition of Glass-Steagall. Heavily promoted by 'ol Alan Greenspan at the time, wasn't it? Free-market deregulation ideology in the name of international competitiveness was how it was sold as I recall.

fshbbdssbbgdd 4y ago
Credit default swaps and collateralized debt obligations also predate the repeal of Glass-Steagall. I think Glass-Steagall got somewhat mythologized after the financial crisis, because there was a desire to hold related political figures responsible. It meant that people who endorsed the repeal had their fingerprints on the Great Recession. There’s some truth to the claim - Lehman was both an investment bank and a commercial bank, so it wouldn’t exist in its final form without Glass-Steagall repeal. Lehman’s demise didn’t seem to be closely related to its commercial banking activity, but that increased the blast radius. Neither AIG nor Bear Stearns did commercial banking at all.
- ckw 4y ago
  The people who endorsed the repeal also successfully fought back attempts to regulate the OTC derivatives market, which arguably lead to the Great Recession. See https://en.m.wikipedia.org/wiki/Brooksley_Born#Born_and_the_OTC_derivatives_market https://en.m.wikipedia.org/wiki/Brooksley_Born#Born_and_the_...
- conductr 4y ago
  Sure they existed but I always felt like the Glass-Steagall kept things separate enough and things really blew up when you had the banks merging with investment banks. They then had the mortgage product pipeline and the derivatives instruments to offload them. The guys who exploded did so because they were over leveraged and could not cover the margin call when the market dipped. Oh and also didn’t get a bail out, they were just instantly insolvent. I’ve slept since then but that’s how my brain seems to remember it.