Would preventing WaMu and Countrywide Financial from running prop desks (which they didn't do anyway) have somehow prevented the crisis? Or would preventing Bear Stearns from issuing mortgages (which they didn't do anyway) have somehow prevented them from going bust?
Please be specific on what would have happened differently if Glass Steagall were still in force.
With something like GS regulators would have been able to say "Wait, you're doing lots of securitisation? That's not a good idea, is it?"
It's not always the specific regulatory details that matter, so much as the culture they create.
As long as GS was taken seriously, the culture remained "If you're a bank, don't do really stupid shit just because you think you can make a quick buck."
Once it started being eroded the culture became "Wheee!" - and unsurprisingly everything exploded and the wheels came off.
IMO anyone who would argue for less regulation after that isn't living at an address in the reliable side of town.
The important arguments have to do with quality of oversight and the culture of people who will consistently try to be as irresponsible as they can be if they're not regulated.
Regulation is a means to that end, not an end in itself.
tl;dr; GS wouldn't have done anything, but it might magically change the "culture" and cause regulators to do other unspecified things which would have done something.
Um, ok.
Also, the main "make a quick buck" bank was Goldman. They did just fine. It was the "make long term safe bets" banks that had problems, e.g. Countrywide, WaMu, Citi. Also, there is nothing inherently wrong with securitization. The underlying problem was the mortgages themselves; securitization merely shifts the risk around.
Regulation isn't just a magic lever that you can switch to "more" or "less". Your post is as clueless as a PHB saying "we need more code, lets switch to J2EE so we'll have lots more lines of code!"
Incorrect. GS and worthy oversight would have nipped most of this in the bud. Just look at what these banks had on their balance sheets at the time, and it would make anyone with a modicum of banking background recoil in horror.
I'm not trying to sound ageist, but judging from the comments on this thread, it appears as if this generation has not learned from 2008 and is bound to repeat the same mistakes. I went through this before with the S&L crisis, one that was largely the fault of lax oversight. We didn't have another blowup until 2008; I guess that was long enough for everyone to forget the early 80's.
GS and worthy oversight would have nipped most of this in the bud.
Again, please explain how - i.e., concrete mechanisms, not vague "if we passed this law that didn't really change anything, maybe culture would have been different".
Just look at what these banks had on their balance sheets at the time...
Please be specific. Which banks are you referring to, and how would GS have significantly affected things? As far as I'm aware, the main banks which significantly mixed IB and S&L activity were JPM and Citi, hardly the epicenters of the crisis.
Also, it's odd how the S&L crisis happened before GS was repealed - why didn't the magical culture change of GS cause regulators to magically crank regulation up to 11 and prevent it?
> Also, it's odd how the S&L crisis happened before GS was repealed
Not really. The 2000s banking crisis happened not long after banking regulations were repealede, the S&L crisis happened after S&L regulations were repealed. (In both cases, the repeals were justified on the basis that the increased freedom would strengthen the deregulated industry and the broader economy.)
Scroll up. TheOtherHobbes claimed: With something like GS regulators would have been able to...It's not always the specific regulatory details that matter, so much as the culture they create.
Apparently the existence of GS did not actually allow regulators to have this magic culture and prevent the S&L crisis. But you do have even more vague generalities that don't mention any specific mechanism.
Tomorrow I'm going to my boss and telling him "we need more code!" I'll refuse to say what the code should do, but I'll point out that Homejoy refactored their codebase before dying of a bad business model.
> Apparently the existence of GS did not actually allow regulators to have this magic culture and prevent the S&L crisis.
Banking and S&L regulations were two separate structures, with different regulatory organizations, and, presumably therefore, somewhat isolated organizational cultures in those organizations. Even if GS had an effect on regulatory culture in banking regulation outside of its specific restrictions, there's no reason it would have had the same effect on S&L regulatory culture.
There are lots of legitimate arguments that might be marshaled against the proposition that eliminating GS enabled the 2000s banking crisis through its effect on the relevant regulatory culture rather than its specific rules, but "the 1980s S&L crisis happened with GS in place" isn't among them.
In fact my argument is that the industry set itself up for meltdowns as soon as regulation stopped having teeth, and meltdowns duly happened when regulations were formally repealed.
Your argument seems to be that the two were unconnected, because regulation cannot possibly be relevant, therefore reasons.
You'll have to ask your boss which argument he finds more convincing.
Try to pay attention. I'm saying that the specific regulation you cite had nothing whatsoever to do with the crisis since the main culprits in 2008 were already obeying GS. I.e., telling Bear not to issue mortgages and telling WaMu not to do IPOs would not have changed anything since they already didn't do those things.
I'm also saying that your magic culture theory of regulation, if true, should have prevented the S&L crisis (since GS was in force then). But I guess you were wrong, and GS isn't actually the magic regulatory pixie dust that causes regulators to solve all the problems? If so, what is?
(Yes, that's a dangerous question, because the minute you mention a law I'll just find a financial crisis from before that law was repealed.)
