Blaming Rubin

By Felix Salmon
May 1, 2010
yesterday's post on Bob Rubin. So I'll not mention the subject again, and leave that debate to the comments of that post. For there's more than enough Rubin debate to go around, especially now that Jacob Weisberg, who co-wrote Rubin's memoir, has published an essay entitled "In Defense of Robert Rubin".

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My commenters are pretty unanimous that I shouldn’t have published yesterday’s post on Bob Rubin. So I’ll not mention the subject again, and leave that debate to the comments of that post. For there’s more than enough Rubin debate to go around, especially now that Jacob Weisberg, who co-wrote Rubin’s memoir, has published an essay entitled “In Defense of Robert Rubin“.

It’s far from convincing, boiling down as it does to what might be called the Hypocrite’s Defense: “never mind what he did, look at what he said!”

To me, the most wrongheaded of the accusations is that Rubin prevented effective financial regulation when he was in government. I smile when I hear this claim because of the hours I spent listening to him argue the opposite. Rubin’s view has always been that the financial system needs to be protected from the excesses of markets. He was the first person I ever heard talk about the risk of derivatives… After the Asian financial crisis, one of Rubin’s refrains was: I think at some point we could have a derivatives-driven financial crisis.

If this is true — and I have no reason to believe that it isn’t — then that makes Rubin more culpable, not less. For there’s no doubt that over the course of the Clinton administration, financial services industry in general, and trade in derivatives in particular, were deregulated to an unprecedented degree. From a financial and economic point of view, the two darkest spots on Clinton’s record are the Gramm-Leach-Bliley Act and the Commodity Futures Modernization Act. And while Rubin might not have been at Treasury any more when those acts were signed into law, there’s no doubt that he personifies, more than anybody else, the economic and financial policy of the Clinton administration. And there’s no evidence whatsoever that he ever stood up in opposition to either of them.

So what’s Weisberg’s excuse for this disastrous failure?

When he was in the Clinton administration, Rubin thought that absent a crisis, it would be politically impossible to pass new rules because of the intensity of the opposition from his former colleagues on Wall Street. He also faced disagreement from Fed Chairman Alan Greenspan, who believed that markets were essentially self-regulating, and some skepticism from his own deputy at Treasury, Larry Summers. Rubin goes into this at length in his book, noting that Summers later ridiculed the kind of comprehensive margin requirements Rubin favored as “playing tennis with wooden rackets.” The three did agree, however, that a legally ambiguous effort by the Commodity Futures Trading Corp., then led by Brooksley Born, to regulate over-the-counter derivatives could have created dangerous market uncertainty.

Let’s take this one item at a time. First of all, Rubin thought he couldn’t pass new laws because Wall Street wouldn’t like them. This is just another way of saying that Rubin was so completely captured by Wall Street that he considered any legislation which might slow it down to be a political impossibility. He never even tried.

Secondly, Rubin was afraid of opposition from Greenspan — an unelected official at an independent central bank which was at the time proud of the fact that it has no control over legislation. (Today, of course, things are different, to the degree that a leaked Fed memo is playing a huge role on Capitol Hill with respect to the prospects for Blanche Lincoln’s derivatives proposals making it into law.)

Thirdly, Rubin faced “some skepticism” from his deputy, Larry Summers. This one hardly needs comment — but for the fact that Rubin not only was overly solicitous to his deputy on this subject, but was also instrumental in promoting him to Secretary upon his own departure, thereby installing as his successor someone who had no desire to regulate derivatives at all.

Finally, faced with a real-life proposal to regulate derivatives, Rubin opposed it, on the grounds that it “could have created dangerous market uncertainty”. I know what dangerous market uncertainty looks like, Bob: it looks like the TED spread gapping out to more than 450bp, as uncertainty over derivatives-related counterparty risk brings the global financial system to the edge of the precipice. I’d love to know what kind of dangerous market uncertainty Rubin was worried about: maybe the danger that senior Goldman Sachs derivatives traders would no longer be able to afford their fourth house?

Back to Weisberg:

Rubin was not wrong about the risk of unregulated derivatives, nor was he opposed to regulating them. To the contrary, he was prophetic about the risk and correct in his prescription.

Well, Rubin was opposed to regulating derivatives when someone (Born) tried to come along and actually do it. And he never bothered to try to enact his prescient precription. It’s a bit like seeing someone’s house burn down, and then saying “you know it’s OK, he really knew — and even said in public — that he ought to buy fire insurance”. Being prophetic, Jacob, is no defense at all. Quite the opposite.

But Weisberg continues with the same idea when he defends Rubin’s indefensible tenure at Citigroup:

Many a Citi executive sat in his corner office listening to the same apprehensions I heard so often about the mispricing of risk, the excesses in the credit market, and the danger of relying on mathematical models.

Except after delivering his disquisitions on the dangers of derivatives, Rubin would then turn around and tell Chuck Prince to let Tommy Maheras take ever more risk in the Citigroup fixed-income department, relying on exactly the mathematical models which he had just been deprecating. Writes Weisberg:

Even if Rubin had better understood the risks Citi traders were taking and been in a position to do something about it, he almost certainly would not have said, “sell the AAA-rated CDOs.”

Actually, Rubin was in a position to do something about the risks that Citi traders were taking. And what he said was “buy even more AAA-rated CDOs”. Rubin, the golden Goldman Sachs arbitrageur, was so highly respected within Citi that neither the CEO nor the board ever thought about questioning his judgment on the proper risk exposure that the fixed-income department should be allowed to take. And so it ended up growing out of control.

Weisberg ignores most of the many other criticisms which can be made of Rubin. To repeat myself:

  • He epitomized the way in which traders ousted investment bankers and turned investment banks into systemically-dangerous institutions by making them much larger than they had ever been in the past.
  • For all his vocal bellyaching about tail risk, he ultimately made his money as an arbitrageur, making leveraged bets that something with a 95% chance of happening was, indeed, going to happen. That’s a strategy which works until it doesn’t — but by the time it failed, Rubin had moved on to greater things.
  • He was one of those senior men at investment banks who encouraged risk-taking without understanding the risks which were being taken.
  • He was perfectly happy to see Larry Summers cheer on the single most disastrous deregulation of derivatives ever, the CFMA.
  • He allowed the illegal creation of Citigroup with a nod and a wink, knowing that Gramm-Leach-Bliley was just around the corner and would make Citigroup legal in retrospect.
  • He then collected his just rewards in the form of $126 million in pay from Citi, for a job which even Weisberg admits involved no managerial responsibility.
  • He turned the job of Treasury secretary into a job where the first priority was to make Wall Street happy, asking for nothing but cheap debt in return.
  • He institutionalized and epitomized the revolving door from Wall Street to Washington and back again.
  • He set himself up as a wise expert on risk, even as he had no idea what risks his own company was running.
  • He took on a job with significant power, but ducked any responsibility which might normally go with such power.
  • He specifically refused to take any responsibility for his recommendations to Weill and Prince on the subject of risk-taking.
  • He failed to push Prince to put in place any kind of succession plan, thereby creating a horrible vacuum at the top of Citigroup just as strong leadership was desperately needed.
  • He’s slippery and unapologetic in hindsight.

So let’s not try to let Rubin off the hook here: he, more than any other individual, deserves an enormous amount of blame for the financial crisis.

22 comments

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He’s also one hell of an orator. Life lessons delivered at a late 90s commencement address:

“I remember once, many years ago, when a securities trader at another firm told me he had purchased a large block of stock. He did this because he was sure — absolutely certain — a particular set of events would occur. I looked, and I agreed that there were no evident roadblocks. He, with his absolute belief, took a very, very large position. I, highly optimistic but recognizing uncertainty, took a large position. Something totally unexpected happened. The projected events did not occur. I caused my firm to lose a lot of money, but not more than it could absorb. He lost an amount way beyond reason — and his job.”

Get bold/risky ideas from others. Appropriate them for oneself, but with slightly less conviction. If the other dude is wrong, you’ll get to keep your job.

Posted by kriscollins | Report as abusive

I read Weisberg’s article earlier today with incredulity. At the very least, wouldn’t any journalist consider such a column topic a conflict of interest? Or don’t those exist in journalism any more (just like they seem not to on Wall Street)?

Posted by Curmudgeon | Report as abusive

“the hours I spent listening to him argue the opposite. ”

Well, why would someone lie about that?

Posted by OscarLeroy | Report as abusive

This quote is an effort to rewrite history: “The three did agree, however, that a legally ambiguous effort by the Commodity Futures Trading Corp., then led by Brooksley Born, to regulate over-the-counter derivatives could have created dangerous market uncertainty.”

Read what Economics of Contempt had to say about
(i) the nonsensical claim that Born was stopped from regulating derivatives — she was stopped from asking questions about the OTC market that would have enabled regulators to determine whether or not to regulate them, and
(ii) the so-called “legal ambiguity” of Born’s efforts (in the second comment) here:
http://economicsofcontempt.blogspot.com/ 2009/05/brooksley-born.html

Posted by csissoko | Report as abusive

I wonder if Rubin’s friends are doing him any favors. By the way, in the financial world, is there just one degree of separation by law?

Posted by DonthelibertDem | Report as abusive

That potato-faced old troglodyte Rubin is such a pistol. Hard to tell which is more outré – his appearance, his perseverance or his concupiscence.

Everything he lacks in nubility is compensated for in single-minded plagiaristic subservience to the Imperial overlords of grey-collar crime. If it weren’t for Larry Summers he’d stick out like a sore thumb.

Posted by HBC | Report as abusive

I didn’t read the part about citibank. I don’t think that discussing what Rubin said as opposed to what he did is “the hypocrites defence.” Rubin had no power to legislate. He could only advise Clinton. The important issue is what Rubin told Clinton.

You also assert that if one thinks a law would be good then only a hypocrite won’t even try to get congress to pass it. You are an excellent journalist and I am glad you are in journalism. I am especially glad you are not advising the President or a congress person. Try to remember the congress that Rubin tried had to deal with. The only question was veto or don’t veto. As you note Rubin wasn’t at the Treasury when Clinton signed the commodities futures modernization act.

This leaves the very important issue of Brooksley Born’s proposal to regulate derivatives using existing law. Here the problem is that the CFTC under Wendy Graham had made such a mess that asserting that the commodities exchange act applied to derivatives would have rendered existing contracts null and retroactively invalid. This is asserted by Norman Carleton who pretty much claims the blame for convincing Rubin to oppose Born. This would have made non-experts extremely eager to interpret the law or change it so that contracts signed in good faith could be enforced.

Born’s effort would have been challenged in court and the matter would be decided by the justices who decided to put Bush in the White House. The plain meaning of the law was no defence against them and practical people knew it. More importantly, an effort by Born would have been met by a new law removing the CFTC’s power. The key question becomes again — would Clinton have vetoed it. Born and Rubin together couldn’t do anything without Clinton’s determined support. The last three words are an oxymoron.

Posted by robertwaldmann | Report as abusive

“I didn’t read the part about citibank. I don’t think that discussing what Rubin said as opposed to what he did is “the hypocrites defence.” Rubin had no power to legislate. He could only advise Clinton. The important issue is what Rubin told Clinton.”

Hhhhhmmmm, well one of the things he apparently “told Clinton” was that Larry Summers was a good man, perhaps the best man, for the job, thereby helping to guarantee the type of advice Bill would be receiving on these very issues going forward.

If he also told Bill things like it would be impossible to stand up to Wall Street, to get a bill through “the Congress [poor] Rubin had to deal with”, and that the “only choice was veto or don’t veto” because “absent a crisis it would be politically impossible to pass new rules” (last quote from “In Defense of Robert Rubin”), I guess we all owe our eternal gratitude to Robert Rubin for giving our 42nd president the advice of waiting for a financial crisis to hit rather than opt for the courage and pen strokes required of a veto.

I mean, hey, after a few million lost their jobs and their homes – I wonder what % of those also lost marriages or worse in the stresses that followed, we can all see the meaningful reform that’s coming now We should give Mr. Rubin credit for this as well, and I’m surprised you didn’t. The man has vision and you clearly have an eye for such things.

I feel tempted to address your decision to exclude from your argument Robert’s time at Citi, but I feel a general dirtiness from the effort to think along your lines. So, I’ll stop after noting one last premise of your argument – big Bill Clinton wouldn’t have given his “determined support” to little Robert in an effort to get proper regulation in.

I guess that Greenspan and Summers’ near market fundamentalism doesn’t matter here since neither were elected officials. Nor does it matter that what Rubin actually said and pushed for at the time is very much open to debate (http://baselinescenario.com/2010/04/21/ what-did-robert-rubin-think-about-deriva tives/).

All that matters for your argument is that Bill from Arkansas wasn’t ready to fully commit to regulating complex financial instruments and transactions in the face of opposition from Summers and Greenspan and, at best, tentativeness (is even that too generous?) from Rubin, all of whom constituted his most senior economic team.

Wow.

Truly, you are a light onto the world.

Posted by ecovin | Report as abusive

I only registered to comment on the Rubin article: I just could not believe what i was reading, a total non-story about his personal life, it’s not why we (did) read your blog. In private eye terminology: you are very much seeing my subscription cancelled!

Posted by andylondon | Report as abusive

Felix, I don’t think the case is as strong as you make it out to be. At least not during his term as Treasury Secretary.

I don’t see how you can blame Rubin for not stopping CFMA. Its possible that Gramm-Leach-Bliley should have been on Rubin’s plate, but CFMA wasn’t passed until a year and a half after Rubin stepped down. Its not enough just to say that he’s the posterboy for Clintonomics, so he gets the blame.

On Rubin being captured because he thought derivatives reform couldn’t be passed:

Yes, its possible that he thought that because he was captured. But it was completely reasonable to expect that it was politically impossible to pass derivatives reform. The Republicans controlled Congress. To get a bill brought up for a vote, they would have needed (1) the assent of Phil Gramm and Tom DeLay, (2) every Democrat, and (3) six Republican Senators [fifteen if there was a filibuster]. And all this would be done with the opposition of the most trusted economist in America, the Maestro, and with the threat of Wall Street contributions drying up for whoever supported it. (This would be especially tough for the Republicans, who were desperate to counter Clinton’s soft-money fundraising).

If you’re Arlen Specter in 1998 – the best case Republican to flip – are you going to vote to regulate something you don’t fully understand when its opposed by the guy everyone thinks is the brightest in the room, opposed by everyone involved in the market, and against your political interests?

As for Summers and Born – hindsight is 20/20. Unless he’s claiming to have foreseen the full magnitude of the crisis a decade before it happened – or unless you think he should be held to that standard – its unfair to expect him to scotch Summers over one issue, or to compare his concerns over Born to what actually happened.

What would be more useful would be to ask what the actual concerns were with Born’s regulations, or what Summers’ good qualities were. Compare those to what he claims to have forseen. Maybe he can’t justify them, maybe he can.

Posted by AnonymousChef | Report as abusive

I’m a little disappointed in the silliness behind the seemingly reasonable comments here. For instance,

“As for Summers and Born – hindsight is 20/20. Unless he’s claiming to have foreseen the full magnitude of the crisis a decade before it happened – or unless you think he should be held to that standard – its unfair to expect him to scotch Summers over one issue, or to compare his concerns over Born to what actually happened.”

As noted in the original post, Rubin believed a “crisis” was needed to overcome the immense political road blocks commentators here keeping pointing to.

Okay, so if not specifically this one or one of this “magnitude”, exactly what type of crisis do you imagine Rubin envisioned as being capable of allowing reform to get through blockages from Wall Street and Republicans? Even the magnitude of this actual crisis does not appear to allow for meaningful reform (at least that’s the trend so far).

Really, it sounds reasonable on the surface – `let’s look at the political environment and his rational back then to understand …’, but really it’s weak. If he was the one who saw problems back then, he needed to stand up. This is particularly so as the story now is that he was basically the one guy who thought that at least a bit of regulation was needed).

Alternatively, if he didn’t really see problems back then that would need a “crisis” to solve, it would be most decent to stop pretending otherwise.

Similarly, Summers isn’t a 1 issue appointment or scotching. If you’re the one guy that things some regulation is needed and you know Greenspan is generally very much against the very idea of it, Summers is not the guy to help put next to the president since he provides no counterweight.

Really, in what aspect of this did Rubin stand-up during his time in Washington? And, come on, Citi is a stain on everything, aside from his personal wealth.

Posted by ecovin | Report as abusive

Ooopps.

2 Points I forgot while typing and wolfing down the tuna salad here.

First, the issue for me isn’t what Congress or what crisis is needed to get reform. It’s standing up when you say you see a problem in an area you are (or are supposed to be) expert in. There’s no perfect time to challenge powerful interests and get a legislative victory.

But, at least, put your concerns out there – on paper, in the press, anywhere either while you’re in public service or after you leave – hence the idea of giving service to the public. Best case scenario, for me anyway, is make your point while you’re actively serving the public in a way that advances public discourse, and can maybe challenge Greenspan group-think.

Second point I forgot to note earlier is that I hope it was just a misreading of the blog post that lead the commentator above to cancel his “subscription” to this blog.

I mean, if the post only concerned Rubin’s “personal life” as the commentator said, I probably would find it odd myself. But it’s kind of hard to miss all that verbiage about advising Clinton, etc., so I was left wondering if it was a bit more of just the commentator seeing what he wanted to see to justify his running away.

Posted by ecovin | Report as abusive

Ecovin,

I’m not really sure what your point is for the first two paragraphs after you quoted me.

Also – making a loud record of your dissent is a great way to neuter yourself politically.

Rubin did attempt to broker a deal on derivatives with Brooksley Born, which she refused because it would have moved the public face of the action away from the CFTC. If he’d run around making a public record about the need for derivatives regulation, he’d have alienated Clinton and destroyed any chance he had of moving Gramm in the right direction.

http://delong.typepad.com/sdj/2010/05/mo re-on-clinton-era-regulation-of-derivati ves.html

Posted by AnonymousChef | Report as abusive

Hi AnonymousChef

Ouch, I goofed. I should have quoted, “Yes, its possible that he thought that because he was captured. But it was completely reasonable to expect that it was politically impossible to pass derivatives reform. The Republicans controlled Congress. To get a bill brought up for a vote, …”

I completely missed the name “Born” in the paragraph I did quote and thought you were talking about the defense of Rubin that stated he didn’t want to attempt instituting regulations without a crisis (“absent a crisis it would be politically impossible to pass new rules” – quoted from “In Defense of Robert Rubin”), which I find to be something of a vulgarity.

Having quoted you one might think I would have actually gotten the point, but no. I leapt and now you forced me to take a look.

Sorry.

As for the neutering, however, any record would have been nice – not necessarily a “loud” one. And, frankly – perhaps too frankly, what’s the point of the organ if you can’t use it for something aside from reports that you had stern conversations with individuals in your office about the risks of something left unregulated and which helped put your corporate employer in such mortal danger?

Also, Clinton left office in 2000. the explosion happened in ’07 – ’08. Rubin could have said something without hurting Bill but, let’s be honest, how would that have looked to Citi? Finally, Gramm was not moving. If anything, if Rubin actually had convictions, he might have moved the public debate on regulation and now would look like a seer, rather then someone trying to rehab his image.

Regards.

Posted by ecovin | Report as abusive

Why would Larry Sumners want to regulate his personal golden cow?

“Insiding trading” should enter the lexicon with a new meaning: trading top Wall Street executives with top business school/academic heads, then trading them a post at the top rank in the Economic Advisory Committee and at the helm of the U.S. Treasury.

Posted by Jos5319 | Report as abusive

Peter Wallison argues that Gramm-Leach had nothing to do with the crash. I recall Dean Baker saying that while it was a bad idea, it still wasn’t the cause. I’m not aware of any real argument showing that it did have such a causal effect. Maybe I just haven’t been reading the right papers. If anyone knows of such a link, please leave a correction at my post:
http://entitledtoanopinion.wordpress.com  /2009/11/24/glass-steagall-wasnt-actual ly-repealed-and-cdss-arent-dynamite/

Posted by TGGP | Report as abusive

I’d like to hear Felix’s perspective on this, actually.

From my uninformed vantage point:

I don’t think it caused the crisis. It does create the risk of contagion spreading faster from the investment banking business to traditional banking than it otherwise would. But that could be contained by regulating shadow banks as if they were banks.

In a sense it seems to institutionalize bailouts of investment houses. Yes, Citi and BoA were able to survive because of their deposits, but we don’t want deposits to be the fallback, because if something happens to those, the FDIC and the American taxpayer will be on the hook.

On the other hand, the flexibility to do those mergers did help stave off an ever larger disaster.

That said, I was able to read about two paragraphs in to the introduction to Wallison’s post before I gave it up as not really attempting to be neutral (as you would expect from AEI).

Posted by AnonymousChef | Report as abusive

Good grief.

The point is that this is a man in the top echelons of power, politically, professionally, and in terms of influence – a man whose JOB it was to know – and he did NOTHING. He was totally ineffectual.

… and when the job aint getting done, you got the wrong man in the job.

Now you can drum up all kinds of excuses for him – the President woudn’t a liked it, Congress woudn’t a liked it, ad infinitum. But, this ain’t kindie garten kids.

Just for fun, let’s make a comparison with our buddy Hank Paulson – a guy who drove the TARP legistlation through with not much more than balls, bubble gum, and a 3-page memo. Now, for good or for bad, THAT’S someone who got it DONE.

As for Gramm-Leach-Bliley having nothing to do with the crash – you must be joking.

GLBA broke down the separations between banking, securities and insurance businesses that was mandated by Glass-Steagall. It certainly wasn’t the only cause of the crisis. There were MANY causes. But it was a HUGE result of the larger deregulatory (we’ll let the ‘invisible hand’ solve all evils) wishful thinking political environment – which Rubin was a prime proponent of.

The fact that Banking Licensees (that hold an explicit government guarantee) were combined with securities and insurance firms (a la Citigroup) was the fuel that ignited the global meltdown requiring massive government financial intervention.

… and if anyone thinks Rubin was on the right side of that one – they’re wrong. The reason Rubin landed his cushy no responsibilities at the office, spend the day on the phone with my wannabe girlfriend and still get paid $15MM/yr. job at Citigroup is that he FACILITATED the demise of the strongest regulatory framework (Glass-Steagall) in securities industry history for Sandy.

Net/Net, not only will Rubin go down in history as an abject failure at his job – it’s already clear to anyone paying attention that his failings contributed greatly to both the global financial meltdown and the resulting misery of millions worldwide.

Period.

Posted by LucyHoneychurch | Report as abusive

Lucy,

Wait a minute. You criticize Rubin for not seeing the crisis ten years out. Why are you cheering Paulson, who failed to see it coming right in front of his nose, when the notional value of derivatives was ten times larger? He did nothing until the collapse hit.

Rubin did propose to regulate deriviatives, but Brooksley Born rejected the deal because she wouldn’t control it. Whether that’s a turf war or her being afraid that whoever else was in charge wouldn’t do it right is in the eye of the beholder.

We have a government with checks and balances. Unless Rubin caused the 1994 Republican landslide and Phil Gramm’s selection as banking chair, its silly to blame him for the fact that reform was impossible outside of the possible deal with Born. You’re falling into the myth of political will.

Also, could you please give a mechanism for how the combination of banking licenses with insurance and investment banking was the fuel that ignited the catastrophe, as you say?

After all, the crisis was most severe among standalone investment houses and standalone subprime mortgage issuers who weren’t even banks to begin with. And I would imagine that a combined bank doing its own securitization would at least have some incentive to check out the facts of people’s loans.

Posted by AnonymousChef | Report as abusive

What I criticize him for, is for being completely ineffectual at his jobs working for both the benefit of the People of this country and the customers of Citigroup. I am not cheering Paulson, merely making a comparison between someone who is effective and someone who is not.

…although both Sandy and Hank would certainly applaud Rubin’s effectiveness, they have a different perspective than mine.

Rubin’s role was contributory. He was a prime player in this mess – though not the sole actor.

The passing of the GLBA ensured that large systemically important firms would arise. And they did. Massive systemic risk is what necessitated massive government intervention. Again, just one factor, but a huge one.

Posted by LucyHoneychurch | Report as abusive

Your take on Paulson reminds me of the “politician’s syllogism”. Something must be done. This is something. Therefore, this must be done.

The government has within living memory bailed out a number of financial institutions. I am speaking of the Savings & Loans. This is not because any of them were extremely large, there were just a great many small failures. The Great Depression similarly featured many small banks that failed. Canada, which has long had just a few large banks, has had far fewer bank failures over its history. If anything, larger banks tend to be more stable and the U.S is unusual in how fractured its system has been (owing in large part to historical unit banking laws).

There was no “demise” of Glass-Steagall. If you read my link you’d know it wasn’t repealed. GLB only repealed the sections allowing commercial banks to be affiliated with investment banks, and the subsidiary commercial banks of Merrill Lynch, Goldman Sachs, Morgan Stanley and Lehman Brothers were more than an order of magnitude smaller than their parents. Citibank, Wachovia, Bank of America, JP Morgan Chase, and Wells Fargo were all still prohibited from “underwriting or dealing” in securities as per section 16 of Glass Steagall, but Glass Steagall had never prohibited them from “purchasing and selling” securities. Nor did GS ever stop them from securitizing loans. All this is explained in the linked piece.

Posted by TGGP | Report as abusive

I’m not defending Paulson’s actions.

The S&L crisis involved the orderly winding-down of banks – not saving them.

The Canadian banking industry is a completely different case, and cannot accurately be compared to ours.

Stability is not the issue at hand.

I’m quite familiar with Glass-Steagall/GLBA and the history around it. I’ve also read your linked reference, and the arguments therein don’t hold water with me.

Posted by LucyHoneychurch | Report as abusive