“your fellow travelers at Huffpo:
Nice. You’ve revealed yourself to be at the level of ad hominem argument. My guess is that your knowledge of finance is pretty meager if that’s your best shot.
The Commodities Futures Modernization Act of 2000 allowed credit default swaps to be sold to parties not directly involved in the transaction. It allowed 3rd parties unlimited betting on whether or not contracts would fail.
Bundled mortgages, CMOs, are the sort of contracts against which you could buy credit default swaps. If you happened to know that a particular CMO was filled with mortgages that the borrowers would default on then you had a guaranteed winner. You would know what’s in the CMO if you had funded and bundled the thing, asking the mortgage brokers at the front end to make the riskiest loans imaginable. Which is why you had strawberry pickers being loaned $800,000 in California. There was a logic behind the bad loans guaranteed to fail and a number of fortunes were made as a result. All legal, and most of it in the shadow banking system.
The Glass-Steagall Act of 1933 had built a wall between investment banking and commercial banking and Graham-Leach-Bliley 1999 removed barriers between the two. Investment banking has a high-risk short-term focus in contrast to commercial lending. In the wake of the Depression it was believed that separating the two spheres of banking would provide some safety to the financial system.
Over the years innovation had erased some of the walls between investment banking and commercial banking. But some observers predicted that trouble would surely follow in the wake of G-L-B stripping away the remaining barriers of Glass-Steagall. There is no doubt that investment banks were heavily involved in the 2008 crisis. They were prominent members of the shadow banking system but without any of the regulation that commercial banks comply with.
Maybe those who predicted the demise of Glass-Steagall would end badly were just lucky. Or maybe their suspicions were right. Either way I didn’t notice you including the Glass-Steagall aspect of Graham-Leach-Bliley in your description of the bill.
How is equating you with people with whom you agree to be construed as ad hominem? I mean, you’ve self-identified with them.