Many did and have money in international currencies and are in banks around the world. They tried to foolproof themselves as they looted the system and took a chance on crashing it.
I don’t want to put words in your mouth, but you seem to be saying that the repeal of Glass Steagall is bad simply because it is deregulation for the purpose of trying to attain an impracticable free market. Isn’t it possible that Glass Steagall was a worthless regulation and that the loss of it really hasn’t had any effect on the housing / credit crises?
It seems to me that new, pertinent regulation could have helped prevent this crises and that this specific deregulatory move did not have much effect at all.
All by itself, no. But it represents a landmark in the ongoing effort to reverse the dreadful socialism set in motion by FDR, to return to days of brisk commerce and unfettered entrepreneurship. Deregulation is one of the icons of the reactionary movemenet. They assert fervently and repeatedly that government regulation stifles business and growth. That we experience growth relentlessly they attribute to their own wisdom in holding back the dread rot of regulation. Pretty nifty, gotta admit.
But no experiment is possible, really, in economics, there is only interpetation of events through different viewpoints. There are no doubt some points to be made for free market thinking, but the devotion of the Goober Nordquists of the world is wildly out of proportion.
I place the bulk of the blame on the Bushivik regime. This thing has been bearing down on us like a glacier, for years I’ve been reading Cassandrist warnings, and no one did a thing. Had it not been for George’s Excellent Adventure compounded by the tax cuts, perhaps they would have cooled the credit market a notch, demanded more scrutiny of the fantasy housing market. But empty equity was shoring up credit, which was shoring up consumption, well, you know the drill.
And, of course, a lot of Republicans were making a lot of money. Men who could be counted upon to perform their civic duty, check-writing wise. Prudent, responsible men. Yes.
This is a very good point and one that I don’t have a good answer for. My only hypothesis is that commercial/investment hybrids (like BofA) have a much broader source of capital and thus a lower percentage of “toxic” paper. However, there were/are rumblings that without the proposed bailout whereby the government purchases toxic paper from anyone wanting to sell it the problems would reach into the commercial banks in a way that wouldn’t have happened if they were not also investment banks. I.e., if we keep our traditional commercial banks nice and boring it is less likely that risky speculation will cause widespread banking collapse. But when we allow the traditional conservative banker to also sideline as a high-risk investment banker it is much more likely that the whole thing will come crashing down.
Also one can invision a situation in which a commercial bank could generate some loans, package them up, and then have their investment banking brethren buy them as a security. Do this for a while, publish your gaudy returns (as the housing bubble grows thanks to the interest rate pressures you mentioned) and suddenly everybody wants in on the act. Throw in a side of dodgy debt ratings from Moody’s et. al. and things get dicey pretty quickly, especially when the bubble bursts.
Nobody (well, at least not me) is saying GLBA is the only or even the primary cause of the crisis, but there are certainly reasons to think it was a contributing factor.
I certainly didn’t mean that GLBA started the practice, but you have to agree that FNMA provided more of a guarantee on mortgages than a real market for trading MBS (they had a monopoly in the “market” for years). Yes, Fannie Mae as a guarantor would provide some incentive to making riskier mortgages, but considering the regulatory hurdles it’s hard to see this being much of an incentive prior to GLBA.
I really don’t know why FNMA was created in the first place; my guess is that “too few” mortgages were being issued during the Depression, and this was a way to inject some cash into the financial system and free up some credit. Again, the fact that FNMA held a government-sponsored monopoly on the secondary market makes it difficult to believe there was much incentive for speculative risk.
GLBA does not deserve the full blame for the current mess, just as slavery doesn’t deserve the full blame for the US Civil War or the assasination of Archduke Ferdinand for WWI. It is a convenient symbol for the general pro-Wall St./anti-regulatory economic philosophy that has dominated Washington politics for the past 30 years. Both Dems and Reps deserve shares of the blame–although it’s clear which has been more in favor of financial deregulation. Odd how they run away from it now when the chickens come home to roost (and no, that wasn’t intended as a Sarah Palin reference).
I’ll agree with this. Poor regulation of investment banks and hedge funds were the loaded gun in this disaster, and can’t be overlooked. And when I read things like this Floyd Norris piece from last December, I have to wonder how anyone calculated the value of securities in the private secondary mortgage market (emphasis mine):
I know big financial cities are more socially liberal, but why blame Gay Lesbian Bisexual Associations for this crisis?