The Glass-Steagall Partial-Repeal Did Not Cause the Financial Crisis

[portlander23]

35. How quickly we forget

The failure of these pure investment banks and the securitization of mortgages was the trigger of the financial crisis, but it wasn't the actual crisis. The crisis was the latticework of credit default swaps that was constructed on top of these institutions and instruments. The value of these CDS and derivatives were valued at $1,144 trillion, which was twenty-two times larger than the GDP of the entire planet.

Why was the entire banking system infected with these bad investments? Because of deregulation and specifically because of the repeal of Glass-Steagall, a new market was created where formerly savings and loan banks could purchase these derivatives. Glass-Steagall would not have prevented investment banks from creating and selling these derivatives, but it would have prevented the enormous market for their sale. It would also have prevented your local bank from being exposed to the catastrophe when these derivatives unwound and became worthless.

The crisis wasn't the failure of a handful of investment banks, it was that every bank and investor was sold bad paper, and prior to Glass-Steagall, your local bank wasn't allowed to buy them. Glass-Steagall wouldn't have prevented the trigger, but it would have stopped or put a serious dent in the size of the derivatives bubble.

Is Mr. Clinton telling the truth? Technically, about the trigger, but he's a damned liar about the crisis. Considering how many people were harmed by his actions, he has no shame.

Banks with the help of politicians like Mr. Clinton tore down regulations that protect the people. They gambled with our money, sold us bad investments, and created the largest pile of bad paper in human history. Then, when the house of cards came tumbling down, rather than bail out the people who got ripped off, we printed more money and handed it to the criminals that caused the crisis in the first place.

Banks got bailed out, we got sold out.

If you want to stand with the bankers, that's your business, but don't tell us that we're delusional to call out criminality and demand we put back the rules that protect the 99%.