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Comment by i67vw3 | Hacker News Reader

Could the Glass-Steagall Act prevented the 2008 banking crisis?

We don't know. Glass Steagall Act doesn't really deal with the fundamental problem with 2008, which was at its core an error in measuring potential risk of new finantial products. It could have prevented some of the worst impacts of that error, but we're not sure.

Here's quote from former Federal Reserve Vice Chairman Alan Blinder: "What bad practices would have been prevented if Glass-Steagall was still on the books? I've yet to hear a good answer."[1]

You know that saying: generals always prepare to fight the last war.

Finantial Regulations are like that too. We don't know where the next crisis will come from, and so we don't know if we're ready for it.

[1]: https://www.npr.org/sections/thetwo-way/2015/10/14/448685233...

Wouldn’t Glass Stegall have made mortgage backed securities difficult if not outright impossible to create?

No. It could have prevented some banks from owning them directly, and that could have cointained their growth, but we don't know really.

Crisis would happened anyway for sure, but the scale could have been smaller. But it's hard to do what-ifs.

Since mortgage-backed securities have been a thing since the mid 1980s, no.

The difference between war and financial regulations is that there is no reason that the conditions that caused a previous financial crisis can't reoccur if you don't regulate against them. It's less like war that way, and more like health: you don't say "well, I got salmonella poisoning last year, so that's the last war; there's no reason to be careful about cooking chicken all the way through now!"

If letting retail banks take depositors' money and gamble with it was a bad idea then, it's almost certainly still a bad idea now.

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