NLIC.org

Tara Said:

WHICH OF THESE PAIRS OF FINANCIAL INSTITUTIONS ARE MOST ALIKE IN TERMS OF THEIR MAIN?

We Answered:

Looks like A

Christine Said:

Is the Glass-Steagall Act even relevant if some financial products didn't exist?

We Answered:

The problem with your logic is that the products are risky, not fraudulent. Thus, they are legal products and came about because of the repeal of the wall between investment and commercial banks. To get to the bottom of your logic puzzle, Congress would have to pass laws that made these types of products illegal - in which case, the commercial bankers would just find a different vehicle to use. You would then have to create a new government agency (either stand alone or within one of the existing regulatory agencies such as the SEC) to license all new financial products before they could be used. Many of the investments that were created (derivatives, etc.) are so complicated that it is almost impossible to determine a risk level which makes it almost impossible to truly determine the legality of the instrument under any regulatory process.

The pressures to continue to lend are what brought on the ability to package and sell mortgages and use the derivatives, etc., to create larger pools of marketable mortgage securities. Without the breakdown of the G-S Act, investment banks could not have offered these products since they could not have entered the mortgage market.