Fed Chairman Ben Bernanke told the Financial Crisis Inquiry Commission in 2010 that that the Wall Street meltdown “was the worst financial crisis in global history;” that 12 of the 13 most important financial institutions in the United States were close to failure “within a week or two.”
A similar crisis during the Great Depression led FDR to pass The Banking Act of 1933 — Glass-Steagall — to regulate financial institutions.
In the 1980s, Savings and Loans were exempted from many of those regulations. With no one watching, many then reduced their underwriting standards, making risky loans and speculating with other people’s money. As a result, over 700 S&Ls failed between 1985 and 1992. The “pro-market” Reagan administration responded by bailing out the S&Ls — at a cost of $160 billion — demonstrating that Washington would insulate the financial sector from risk.
Undeterred by the disastrous S&L deregulation, Congress passed Gramm-Leach-Bliley in 1999 — a law engineered by Republican Sen. Phil Gramm, chairman of the Senate Finance Committee — that repealed the Glass-Steagall regulations governing Wall Street investment firms. A year later, Gramm steered the Commodity Futures Modernization Act through a lame-duck Congress with one day’s notice. It prohibited the executive branch from regulating derivatives, instruments that Warren Buffett called “financial weapons of mass destruction.” more