Actually more than one. Investment bank Bear Stearns. Investment bank Lehman Brothers. Commercial bank Washington Mutual. FNMA. FMAC. More.
Actually the causation can be traced to a stack of causes, and the Gramm-Leach-Bliley repeal of Glass-Steagall was one of the smaller ones. None of the big banks that got in trouble were in violation of the old Glass-Steagall no-combinations of commercial and investment banks, and some of the rescues were explicit combinations, like Bank of America buying Merrill-Lynch.
The cause of the financial crisis can be traced to an excess of mortgage loans made that the borrowers could not pay back. There were a stack of reasons why too many loans were made.
- The Federal Reserve kept interest rates too low for too long. When they start raising rates what had been “good loans” started becoming unaffordable.
- The home industry over-promotes the value of buying a home, and of a home as a builder of wealth.
- GW Bush with his “ownership society” and Bill Clinton with his anti-redlining lending-discrimination thrust wanted to benefit poor folk, particularly of color, by getting them into homes regardless of whether they could afford them. They favored low interest rates to help get poor folk with bad credit into those loans. Banks are graded on their community lending scores, and thus pressured to lower their lending standards for some (all?) neighborhoods.
- Bankers were rewarded for playing along. Greed was countenanced if the regulators’ wishes for more housing were satisfied.
- Several sorts of regulators were involved. The anti-lending-discrimination regulators who wanted more people to get loans beat the banking safety regulators.
- Localities aren’t much interested in affordable housing. They want property taxes and engage in several sorts of “exclusive zoning”. Larger more expensive houses is one way.
** Federal easy mortgage money was intended to go around those local restrictions…
- The bank regulators countenanced securitization as a way of making more loan money available.
- Everyone thought home prices could only go up, which had impacts on the next several points.
- Pension funds had mismanaged their money earlier and wanted easy high earnings, and thought MBS-s were it. They were eager to buy MBS-s.
- Credit rating agencies didn’t do their job, until it was too late. This, btw, was a known problem long predating this crisis.
- Banks and mortgage servicers took a lax view towards loan defaults, believing that it was easy to foreclose and resell the house on the market for a profit.
- A few too many people treated their houses like ATMs, instead of paying down their mortgage loans.
- FNMA and FMAC participated in this “too easy to borrow” game, and towards the end they also bought more MBS-s than they should have.
And quite possibly I haven’t named all the causes.
People say that TBTF is because of the very bad consequences to the economy if a TBTF bank failed.
– I add that before that we have a problem with cowardly politicians and regulators who aren’t willing to let a big bank fail. So our aim in preventing TBTF is to keep banks small enough that the politicians and regulators will let that bank fail. And God save us from suffering a wave of such failures.
I personally assign only a smallish part of the blame of 2008 on the repeal of Glass-Steagall. But I also think that restoring Glass-Steagall is an “easy” way to restore safety and public trust to our banking and finance system. I can also advocate for a few more things, such as ending the ability of corporations to deduct debt-interest from their taxes, and making corporate taxes more progressive, so the bigger the business and its profits, the higher its tax bill.