Wednesday, September 13, 2017

FLG Can't Believe A Decade Later This Is Still So Little Understood

When Glass-Steagall was passed over 80 years ago, splitting up a bank was like dividing an apple pie in half. Today, trying to hive off commercial from investment banking would be more like pulling apart a layer cake – vertically.
In fact, knocking down the walls between financial services didn’t help cause the financial meltdown so much as help contain it. None of the institutions that ended up doing the most to prompt the financial meltdown was a financial hybrid. Most of the problems that sprung up among financial institutions in 2008 were among pure-play institutions, primarily investment banks – and their boutique activities would not have been circumscribed by the Glass-Steagall firewall. In fact, knocking down that legal wall actually made it possible for several investment banks to be rescued. If Glass-Steagall had not been changed, the commercial bank J.P. Morgan Chase would not have been able to rescue the investment bank Bear Sterns, and commercial Bank of America would not have been able to rescue Merrill Lynch.

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