Forum Post: ‘Repeal’ of Glass-Steagall Irrelevant to Financial Crisis
Posted 13 years ago on Nov. 2, 2011, 6:56 a.m. EST by darrenlobo
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When we recall that stand-alone institutions, both commercial and investment, also failed during the crisis, and that all of them acquired mortgage-backed securities (which they had always been allowed to do, by the way), the Glass-Steagall “repeal” looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place.
(The problem with those who point to Glass-Steagall is not that they’re radical. It’s that they’re not nearly radical enough. They think the system as is, shot through with moral hazard at every level, and presided over by a market-defying central bank, is of its nature stable and without fault; we just need a few regulations.)
People see "to big to fail" and look to how it came about and that line of inquiry leads to the repeal of GS for many because of the consolidations it enabled.
But you are of course correct, the current situation was not caused by the repeal of GS and GS itself, had it not been repealed, would not necessarily prevented any of this especially when you consider the role of Fannie and Freddie.
However, keep in mind, people are pissed off about TARP and see it tied to the concept of "too big to fail" and I think that is the reasoning that is leading some to call for the return of GS.