The collapse was the result of a real estate bubble. Changes to the law in 1999 had no effect on something that was already underway at the time. The focus on Glass-Steagal is political and a distraction from actual causes.
There are a few things that could have been done to puncture the bubble before it got truly out of hand, but bubbles are a function of peoples' expectations more than any government policy, so we were in for a bad recession no matter what. And there's no way politicians are going to get blamed for a bad recession if someone else can be blamed for a worse one.
At this point the best thing that could happen is regulations simplified and streamlined to the point that Congressional aides (the people who actually write the laws when they're not just passing along something from a lobbyist) can understand them. Also, the GSEs should be recognized as a bad experiment and dealt with accordingly.
Alright. The re bubble was not big enough to create the crisis - firstly.
It's was the cdo industry which leveraged those mortgages, and the other derivatives which made the whole crisis exponentially larger and exponentially more complex.
An issue during the crisis was not that people were broke, but that they didn't even know what their exposure was.
Now if, like under glass steagal, the investment banks were the only ones holding onto the CDOs, they would only be the ones exposed, and the ones who may need recapitalization / bankruptcy.
It would also have limited the size of the final leverage being taken on the bubble.
Also it's not political, my dyed in the wool republican finance teacher/boss spoke about how glass steagal was grudgingly useful, before the crisis hit. It isn't a theory propagated during the crisis, it's a theory substantiated by the crisis.
>Alright. The re bubble was not big enough to create the crisis - firstly.
The hell it wasn't. All that debt would have been held by somebody. It may not have been bundled up in CDOs, but look what happened to Countrywide - they went under (or, I guess, technically force onto BofA by the government) because they held on to their own paper. Even still the bulk of the writedowns have yet to occur, and the taxpayers will end up picking up the tab for all that garbage the GSEs hoovered up.
>Also it's not political, my dyed in the wool republican finance teacher/boss spoke about how glass steagal was grudgingly useful, before the crisis hit. It isn't a theory propagated during the crisis, it's a theory substantiated by the crisis.
He has no way of knowing that. The problem with economics is it isn't in any way a science. For nearly every position you can take on an issue you'll find respected economists on both sides looking at the same data and drawing different conclusions.
I'm not saying there's no logic in that position, just that the idea the whole problem was Glass-Steagal is only getting a lot of play in the media because it dovetails nicely with "those ebil greedy banksters" talking points on the left.
Your steps to the Crisis are off a bit. You see the re bubble was and is still being deflated. That would have only hit American banks primarily, and it would have been a slowdown only - if that was all that happened.
What you are forgetting ignoring, is that the mortgages were only fuel for the CDO market. That market was powers bigger, completely levered and so the smallest misstep meant outsized failures.
On top of this you had yet more instruments piled on, where people made just plain betson market outcomes.
Oh yeah, the swaps were also insuring far more than what the underlings were worth too.
So the real estate bubble wasn't big enough to create a crisis - for that we needed CDOs and CDSs to lever the bubble.
And a lot of those write downs have happened, the banks has their PE ratios and the rest crushed in 08. They took most of their hits.
All they have now is shadow inventory, which they can't afford to let onto the market because it would depress housing prices further.
This when some Americans are too broke to live in tents :)
For the glass steagal bit, sorry but right now your aim to be above the debate is making you take a stand based on what you think is a talking point.
It's your perception that it's a talking point, but in that case why my example was someone who was on the other side of the evil banker discussion, who was saying that glass steagal was good.
And this was even before the predicted outcome - rapacious irresponsibility, was proven. While you may want to be above the debate, it's not a talking point. It's more like a strongly substantiated theory.
>For the glass steagal bit, sorry but right now your aim to be above the debate is making you take a stand based on what you think is a talking point.
Either I've been unclear or you seem to have misinterpreted what I said. When you say "It isn't a theory propagated during the crisis, it's a theory substantiated by the crisis," I can see why you think that. It doesn't mean I don't think you're wrong. I do. And I do think it's a talking point - you write as if this was all settled, and it's not.
And my point about economics as a pseudo science was really a long winded way of saying your assertion that "my dyed in the wool republican finance teacher/boss spoke about how glass steagal was grudgingly useful, before the crisis hit" carries the same intellectual weight as "The guy who runs the local sandwich shop has a sister whose brick-layer husband think glass steagal is useful"
There are a few things that could have been done to puncture the bubble before it got truly out of hand, but bubbles are a function of peoples' expectations more than any government policy, so we were in for a bad recession no matter what. And there's no way politicians are going to get blamed for a bad recession if someone else can be blamed for a worse one.
At this point the best thing that could happen is regulations simplified and streamlined to the point that Congressional aides (the people who actually write the laws when they're not just passing along something from a lobbyist) can understand them. Also, the GSEs should be recognized as a bad experiment and dealt with accordingly.