3 ms·
Credit default swaps and collateralized debt obligations also predate the repeal of Glass-Steagall. I think Glass-Steagall got somewhat mythologized after the
by 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 agoThe 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 agoSure 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.