It took Congress only a handful of pages in 1933 to protect the financial system from future meltdowns such as occurred in the Great Depression. The Glass-Steagall Act was really pretty simple: it set up a legislatively mandated wall between commercial banking and investment banking. It is generally credited as having protected the financial system well for about 60 years; although commercial bankers particularly complained as the years rolled while investment bankers created new deposit-like products and commercial paper replaced many bank lines, all of which tended to unlevel the playing field in favor of the investment bankers. The wall between investment banking and commercial banking began to break down through regulatory action, primarily by the Federal Reserve, in the 1980’s, and was finally torn down once and for all with the passage of Gramm-Leach-Bliley in 1999.

In the wake of the near meltdown of 2008, with taxpayers to one degree or another bailing out numerous financial institutions such as Bear Stearns, Washington Mutual, and American International Group (AIG) to name a few (but not Lehman Brothers), the legislative response took 2,300 pages in the form of the Dodd-Frank Act, which merely laid out a template to be followed by probably tens of thousands of as yet unwritten pages of implementing regulations by numerous agencies over the next few years. While some argued for the restoration of Glass-Steagall, Congress opted for a different approach, at the heart of which was the intended elimination of the doctrine of “too big to fail” (TBTF), in the name of which institutions deemed systemically important were rescued at tax-payer expense.

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