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

[MFrohike]

46. No

Both investment AND commercial banks securitized mortgages. Both packaged them into MBS and CDOs. The difference was that the commercial banks were less leveraged and not dependent on the repo market like the investment banks. The problems for the commercial banks were that they were functionally insolvent because a huge chunk of their assets weren't worth squat, their legal liabilities were immense, and they lost access to quite a bit of revenue when the investment banks fell apart. Everybody we call a bank securitized those mortgages. The commercial banks just weren't as close to the edge, except for Citi.

I don't think they insulated themselves by design. It was dumb luck and differing models. As for things like buying ML, I don't know if that was a good move. Until that sweetheart deal Holder gave them a few months ago, their potential liability between ML, Countrywide, and their own actions was estimated at $80B. They were in litigation with both governments and private entities for years over the fallout from those purchases. Morgan is another example. Between 2009 and 2013, they spent $16B in legal fees. Jamie Dimon was celebrating a bit last month when earnings came out because Morgan had pared their legal fees down to $2B a year instead of 4. They didn't collapse, but they paid a gigantic price. Unfortunately, they didn't pay the price we needed them to pay, radical downsizing, and they continue to be a systemic risk (all the big banks, not just those two).