I will donate $1000 to the DNC now if someone explains how G-S caused Lehman to fail.

[ProSense]

4. A couple of points:

The repeal of Glass-Steagall and the Commodity Futures Modernization Act, both facilitated by Phil Gramm, led to the crisis.

Glass-Steagall was about separating commercial banking from investment banking:

• Banking Act of 1933 (P.L. 73-66, 48 STAT. 162).
  Also known as the Glass-Steagall Act. Established the FDIC as a temporary agency. Separated commercial banking from investment banking, establishing them as separate lines of commerce.

http://www.fdic.gov/regulations/laws/important/index.html

Commodity Futures Modernization Act of 2000

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

The Gramm connection

Aha: the Politico notices that Phil Gramm, McCain’s economic guru, can also be viewed as the father of the financial crisis.

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

….

According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages

Where have I seen that before? Ah:

His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Seriously, the Gramm connection tells you all you need to know about where a McCain administration would stand on financial issues: squarely against any significant reform.

http://krugman.blogs.nytimes.com/2008/03/29/the-gramm-connection/

The Volcker rule reinstated the separation of commercial and investment banking:

<...>

The Volcker Rule was one of the most important reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It prohibits federally insured banks from engaging in proprietary trading, participating in complex securitizations, owning hedge funds or private equity funds, or engaging in any other high-risk activities. It also prohibits banks from taking actions that conflict with the interests of their customers.

The public comment window for the rule ended on Feb. 13. The Securities and Exchange Commission alone received more than 18,000 comments, more than 15,700 of which came from Public Citizen members and supporters. Legislators submitted 17 separate letters signed by 172 members asking for changes that would weaken the rule. Three letters signed by 20 members recommended steps to strengthen it.

http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=3570