2016 Postmortem
In reply to the discussion: Hillary Clinton opposes breaking up the megabanks, opposes reinstating Glass-Steagall [View all]ljm2002
(10,751 posts)...in some cases for 4 years (might be 5) after the law takes effect, assuming that it does. As far as I know, we will see the law itself. I would have to see their specific quotes on the topic to know if they misspoke about what it is we won't see for years.
About those "highly collateralized loans"... In the old days, when a commercial bank made a mortgage loan, the house was the collateral for the loan AND the bank kept the loan. But in the run-up to the 2007/2008 crisis, mortgages were being sliced and diced into "financial products" and sold to whoever could be duped, er, persuaded into buying them. Yes this started before the repeal of Glass-Steagall, but even so, it is clearly against the fundamental reason for Glass-Steagall in the first place: namely, preventing FDIC-insured commercial banks from engaging in risky securities trading.
So now having sold off their mortgage papers, the banks had made their money and didn't have to worry about whether those loans were any good. Their incentives thus became to make as many loans as possible and sell them off as quickly as possible. They had little incentive to ensure that the loans were good -- as long as they could package them as AAA financial products (with the help of cooperative ratings agencies like AIG) and make their quick money.
Well we saw the result of that.