But first, let's be clear:
The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.
In other words, it allowed the big banks to compete in the world of risky lending and investment practices that smaller derivatives such as mortgage brokers were already engaging in.
However, had stringent regulations been implemented and executed by the Bush White House for all these risky investments and loans, and had this ideology that the market takes care of itself not been revered as gospel, then it would not have mattered that Glass-Steagall was ever repealed. Glass-Steagall did not provide the regulation of the mortgage industry. It simply allowed the big boyz to enter riskier markets and had there been regulations in place, then the big boyz who are too big to fail would have never failed to begin with.
Now let's get back to Clinton and the Glass-Steagall Act.
The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA) in 1999. The bills were passed by a 54-44 vote along party lines with Republican support in the Senate and by a 343-86 vote in the House of Representatives. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bipartisan bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. Without forcing a veto vote, this bipartisan, veto proof legislation was signed into law by President Bill Clinton on November 12, 1999.
Clinton's hands were essentially tied by the Republican and Corporate Democratic controlled Congress and banks have been lobbying for the removal of the Act since the 1970's. Of course, if he was as disrespectful to the Constitution as Bush, he would have just issued a signing statement to serve as a line-item veto to get rid of the disliked portions of the bill.
Let's not forget, Phil Gramm is McCain's top economic advisor. McCain also refuses to rule out appointing Phil "Nation of Whiners" Gramm as Treasury Secretary.
Anyhow, take a look at Clinton's take on this mess in the clip below from the View:
"We basically made too much money out of money." -Bill Clinton
Frontline did a piece on the history of credit, mortages, and interest rates that follows nicely to what Clinton was getting at before HasselBitch wanted to move on to his Global Initiative around the 5 minute mark.
Mortgaging the Future
Interest rate deregulation dovetailed neatly with a seemingly unrelated phenomenon: the bidding war for suburban housing. The mortgage industry shook off its interest rate regulations just a few years after the credit card industry. In the new world of unfettered mortgage lending, no longer would the middle-class family be restricted to a conventional 80 percent mortgage. The floodgates were opened, and families could get all the mortgage money they ever dreamed of to bid on that precious home in the suburbs -- even if the price tag was more than they could realistically afford.
And as nicely as Clinton pointed out in the clip, every home owner that goes looking for a loan only thinks of one thing: "Can I afford the monthly payment." If they can, then sub-prime rates, interest only loans, sneaky legal language, and the like do not enter the minds of most average Americans. Therefore, placing blame on the people who took out these loans is questionable at best. Of course, many probably should have known better, yet these banks should have never been allowed to issue so many risky loans in the first place.
So to the degree that the repeal of the Glass-Steagall Act allowed banks to get into non-traditional banking activities like investments and stupid loans, sure, that was a factor. But I believe the lenient regulations and failure of self-regulating internally within the company (i.e. the free hand of the market) hold the biggest burden of the blame than anything else. Again, it's this type of altruistic market philosophy that the Republicans have been hammering for, and winning, for the past 30 years.
These large banks are not in trouble due to the fact that they may have a brokerage branch. They are in trouble because they hold bad mortgages as a result of de-regulation.