Glass-Steagall was set aside with the passage of the Gramm-Leach-Bliley Act in 1999, and progressives consistently blame that fact for the financial crisis, but no person familiar with the facts of the situation seriously believes that — even Elizabeth Warren has admitted as much.
Glass-Steagall kept commercial banks from getting into the investment-bank business, which may or may not be a good idea, but the firms at the center of the 2008–09 crisis were pure-play investment banks (Bear Stearns, Lehman, Merrill Lynch), an insurance company (AIG), and two government-run enterprises (Fannie Mae and Freddie Mac). Had Glass-Steagall been in effect, none of those institutions would have been subject to it. Of the commercial banks that found themselves in trouble during the crisis, few had any significant problems related to investment banking. Bank of America and Wachovia suffered from having acquired companies with terrible loan portfolios. At most, Glass-Steagall might have reduced some of the problems experienced by Citigroup.The Left, daftly committed to its black-hats/white-hats model of economics, has never been able to account for the fact that the financial crisis was not the result of a criminal conspiracy; it was the result of financial institutions making bad investments.This is a broader problem, the importance of which extends well beyond the analysis of the unpleasant events of 2008–09. The Left suffers intellectually from a retreat into moralism and, even more significantly, from a retreat into abstraction and aggregation. The financial crisis was not a “failure of capitalism,” but the failure of specific firms and specific institutions and specific individuals . . .
Another example of the Left wanting to find macro explanations for micro issues.
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