What if the Roosevelt administration and Congress had introduced the Glass-Steagall Act of 1933 as a constitutional amendment rather than as an ordinary piece of legislation? Clearly, it would then have become that much harder to reverse Glass-Steagall half a century later. Lehman Brothers might still be standing. Perhaps the financial upheavals of recent years could have been averted altogether.Ignoring that introducing the Banking Act of 1933 as a constitutional amendment would almost surely have led to its failure to become law, we have pointed out numerous times on this blog that Glass-Steagall has never been reversed.
Deposit insurance under the FDIC still exists (Congressman Steagall's idea), as do the provisions defining (attempting to, anyway) commercial and investment banking (Sen. Carter Glass's contribution); provisions #16 and #21.
It was only the 'affiliations provisions' (#20 and #32) that had prevented a holding company from owning both types of firms, separately, and the ban on one person sitting on the boards of both, that were repealed 'half a century later' in the Gramm, Leach, Bliley Act of 1999.
But, what to make of the Gylfason claim that Lehman might still be standing? The committee is baffled as to why that investment bank would have been affected even if the whole of Glass-Steagall had been repealed.
GS has nothing to say about mortgage backed securities in the first place, it was concerned with corporate stocks and bonds, not real estate. And it was, all economists agree, bad real estate loans that caused the problems leading to the financial crisis.
It's not the things he doesn't know that worry me, it's the things he knows for sure that just aren't so.