So Wachovia, instead of being sold to Wells Fargo, should have just went bankrupt? And Merrill Lynch, instead of being bought by Bank of America, should have we

So Wachovia, instead of being sold to Wells Fargo, should have just went bankrupt? And Merrill Lynch, instead of being bought by Bank of America, should have went bankrupt? That would have eased the crisis, how? Glass Stegall would have blocked both of those transactions. Would Glass-Stegall have reduced unprecedented capital flows into the US housing sector from overseas investors and the monetary and fiscal policies of our own government? Because if you still have those capital flows, you still have housing prices going up by 20% per year, you still have lenders lowering their standards, and you still have them getting caught holding the bag. I'm sorry, I just don't see it. Not all deregulation is equal. Each individual policy has its own incentives. There are not two undifferentiated piles called "regulation" and "deregulation" that we can add and subtract from. I have a hard time seeing how the repeal of Glass Steagall did anything but mitigate the current crisis. And yes, during the Great Depression it was small banks that were made artificially small by anti-banking laws that failed. The repeal of anti-size regulation has sound historical reasoning on its side. Meg McArdle had a good post on this. I need to find out about her background, because she is one of about 5 people on the internet that can write INFORMED analysis of issues like these: http://meganmcardle.theatlantic.com/archives/2008/09/clear_as_glass_steagall.php http://meganmcardle.theatlantic.com/archives/2008/09/clear_a... " Even if you ignore the economic history indicating that Glass-Steagall didn't help the crisis it was meant to solve--even if you assume, arguendo, that the repeal was a bad idea--there's simply no logical reason to believe it had anything to do with the current mess. Securitization was not introduced in the 1990s; it was invented in the 1970s and became popular in the 1980s, as chronicled in Liar's Poker. (As an aside, if you haven't read it, you really must. Especially now). GLB had nothing to do with either lending standards at commercial banks, or leverage ratios at broker-dealers, the two most plausible candidates for regulatory failure here. Most importantly, commercial banks are not the main problems. If Glass-Steagall's repeal had meaningfully contributed to this crisis, we should see the failures concentrated among megabanks where speculation put deposits at risk. Instead we see the exact opposite: the failures are among either commercial banks with no significant investment arm (Washington Mutual, Countrywide), or standalone investment banks. It is the diversified financial institutions that are riding to the rescue." My own take on it: http://distributedrepublic.net/archives/2008/09/22/the-end-era http://distributedrepublic.net/archives/2008/09/22/the-end-e...