[palmer]

Whatever the policies regarding mergers of banks and investment houses, we would have experienced a housing bubble and it would still have popped, bringing massive losses to homeowners across the nation and a retrenchment in homebuilding that would last years. Fannie Mae and Freddie Mac would still be in conservatorship, having overleveraged themselves to peddle the American dream of home ownership. Investors would still have lost money on mortgage-backed securities built on subprime mortgages. Those losses would still have led to concerns that safer mortgages might default, expanding the breadth of losses in the MBS market. We would be in a deep recession as a result of the housing downturn regardless of whether banking activities are segregated.

and

Reinstating Glass-Steagall is a simple response to a complex issue. While simple may be all we can swallow, it remains the case that the Federal Reserve has not been successful in striking a balance between helping out the economy and condoning bad behavior by financial firms."

From Glass-Steagall Redux

There are many other factors behind the recession and financial collapse (or near collapse) that are not discussed in the article that also have nothing to do with Glass-Steagal. There are other regulations that could also be discussed, but none of them would have negated or prevented the major causes of lending system seizure and recession last year: like the commodities bubble and its popping in July08; the carry trade from years of super low rates in Japan; the stupid European hedge funds and banks that bet on our housing bubble; the Greenspan put; etc...

[parsifal]

Assume Glass Steagall is re-instated. What’s the harm for the future? Would it have prevented the meltdown all by itself? No, I don’t think so either. It may have lessened the TBTF part.

Probably the CMA and failure to regulate derivatives did a lot more. It’s not like there weren’t warning signs. I think there is not a single reg that can save us in the future. it is an ongoing job. I think there are lots of little things that can be done to slow down bubbles.

parsy, who is trying to be realistic