Quote:
It could be said, and I'm saying it, that Senator Phil Gramm, Republican from Texas, started the deregulation that wound up causing this mess, when he authored the Gramm-Leach-Bliley Financial Services Modernization Act. It repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
The Gramm-Leach-Bliley Act allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services under brands including Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation. This combination would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies.
Bank of America and AIG are other examples of these abominations.
Excon
Let's assume that Glass Steagall were still in place. So instead of JP Morgan Chase bundling mortgages and then selling derivatives based on those mortgages, Chase would have bundled the mortgages, and JP Morgan would have sold derivatives based on the mortgages. Either way, the product would still have existed, would still have failed and would still have caused the same problem. Glass-Steagall didn't prevent that from happening in the slightest. Ditto for AIG, Citigroup, B of A and any other financial conglomerate you can think of.