In our conversation about who we should blame for the global financial crisis, quite a few of you have pointed the finger at the repeal of the Glass-Steagall Act, which separated commercial banks from securities firms. Listener Elise Schuster points us to this New York Times article from 1999 recently reposted by BoingBoing. The title of the article is "Congress Passes Wide-Ranging Bill Easing Bank Laws." It reads:
...Consumer groups and civil rights advocates criticized the legislation for being a sop to the nation's biggest financial institutions. They say that it fails to protect the privacy interests of consumers and community lending standards for the disadvantaged and that it will create more problems than it solves.
The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.
''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''
Reading the article reminded me of a recent piece Bloomberg did about the Glass-Steagall Act coming back to haunt Wall Street. Bloomberg reports:
Phil Gramm, a Republican senator from Texas who co-authored the Gramm-Leach-Bliley Act that repealed many key provisions of Glass-Steagall, later went to work for UBS AG, the Swiss bank whose foray into investment banking contributed to an 88 percent drop in its shares since June 2007. Robert Rubin, a Clinton administration Treasury secretary who advocated Glass-Steagall's repeal, went on to work for Citigroup, which lost $27.7 billion in 2008 and has needed $45 billion in government funds to remain solvent.
Bonus: In defense of Glass Steagall.