Dean,
As I am sure you know, several economists (e.g. Brad Delong), have been stating that the repeal of Glass-Steagell had nothing to do with the disaster last year; they also state that the banks that combined commercial and investment banking fared better than other institutions. Could you comment more fully on that question.
Thank you.

...several economists (e.g. Brad Delong), have been stating that the repeal of Glass-Steagell had nothing to do with the disaster last year

What do economists know? I'll bet most of these 'several economists (e.g. Brad DeLong)' had their heads up their collective backsides playing with their silly math models while the whole effing economy blew up.

DeLong is a Summers wannabe (how pathetic is that) and a neoliberal tool.

Excellent points all but I second dls request. One counter-example (Citibank) does not disprove an argument about which types of banks tended to do better. Do you have data on this position?

I don't think repeal of Glass-Steagell played a major role in this crisis, although I do think it is bad policy. (How do you feel about subsidizing Goldman's speculation?) I was just taking issue with what seemed a ridiculous assertion that the merged investment-commerical banks had done better in the crisis than other commercial banks. Our sample is small, but Citigroup has to top the list, and it did not do well.

Which bank did best? I think this would have to be the former investment-only bank Goldman Sachs though I have not looked at the data (this would be a good subject for a newspaper/magazine article). Part of their success was due to timely short-selling, but a lot would have to be credited to inside influence. The article says "the pure investment banks, like Lehman Brothers, have been the greatest source of instability" which is probably true, but because of Fed/Treasury intervention the survivors have not necessarily done the worst - or as badly as they deserved. Moral hazard has definitely not applied during the crisis.

Commercial banks were allowed to get into financial-market operations (speculation) long before the formal repeal of Glass-Steagall - that was almost a formal gesture of ratification of deregulation.

The worst possible outcome is to be left with the same financial system we started out with.

We need a system that's toxic for mega-banks and more friendly for smaller institutions.

For that reason, we need a updated version of Glass-Steagal now.

Of course, the neo-Rubinist, Brad Delong would never understand such concepts.

Not sure how you can get to the place where the repeal of Glass-Steagell was not a major contributor to the 2008 meltdown. It's like saying that just because you remove all of the stop lights, a car crash isn't inevitable. As Damon Runyon once said, the race isn't always to the swift, but that's sure the way to bet.

We're hearing now about "fear" of the "permanent loss of skills" among the unemployed, disrupting "career tracks" and generally making this generation of workers worse off.

Again, forgetful of the Internet Bubble and the Clinton Crash.

The 1990s saw the dramatic "creation" of "jobs" in sectors with no meaningful long term business models, bereft of revenue flows, feeding off an investment community as obsessed with internet stocks as Tulips.

People with fantastic prospects jumped off serious career tracks with abandon, causing more long-term disruption to our economy than this Fannie Mae and mortgage tax deduction fueled debacle involving one of the most regulated sectors of our economy.

Enough with big government!!! Put the burden of financial failures on the owners!!! Slash government spending and cut taxes, and let the private sector and the citizenry get on with living life!

Agree on the dollar issue, but 10-12 percent unemployment is a lot, lot better than 17 or 22 pct unemp. I think that's the point.

I also didn't get the impression that the Clinton boom was overly emphasized.

And a key point of the Summers profile is that he evolves. If he has learned *all* his lessons, (i guess we'll find out) he is not so worthy of facile vilification.

I'm a big fan of Dean Baker, but I think he's overreacting here.

BTW, DeLong never stated that Glass had "Nothing" to do with the crash. That is wrong.

The New Yorker has published a series of serious a$$-kissing pieces about the new administration since January, including one on Rahm Emanuel, and one on Peter Orszag, if I remembered right.

I've heard about editorial 'strategies' of writing lazy, adoring profiles of people in power, in exchange for 'access'. But one can't help but wonder, access for what? For writing some more a$$-kissing, adoring pieces??? Main stream press is as despicable as ever in their laziness and deference of power and money.

I don't think that I am misreading DeLong. Go to his blog entitled "Glass-Steagell and the Crisis" (10/4), where it says "Joe Stiglitz thinks that the investment bank culture took over the commercial banks. I think that merging investment and commercial banks gave investment banks more stability in their liabilities that allowed them to ride out the storm more easily.
Alan Blinder agrees with me, which makes me happy." He is further quoted in the cited article by Ryan Lizza as follows: " Brad DeLong added, “To say that the breaking down of the Glass-Steagall wall between investment banks and commercial banks was the source of the current crisis is just wrong”...

The repeal of Glass-Steagell played a major role. Glass-Steagell was a critical piece of banking regulation. Repeal increased the appetite of the GOP Congress and the Clinton for other "regulatory reform" that amounted to a a virtual abandonment of regulation culminating in legislation forbidding regulation of credit default swaps.

Without the repeal of Glass-Steagell, how would the regulated banks and the merchant bankers have been able to combine forces and compete with Fannie Mae?

How nice to find a site (unlike Krugman's) skeptical of Brad DeLong. DeLong, just to give one example of stunning obstuseness, reviewed Greenspan's book at the end of 2007 (for the L.A.Times) in glowing, career-congratulating terms. Even now there's no evidence that DeLong, or Krugman, grasps what extraordinary damage Greenspan--and his worshippers, or enablers--perpetrated. Two worldclass bubbles in one decade! Millions ruined! If Krugman had truly comprehended the magnitude of damage, he'd have been on the case every week.

Nothing in the article mentioned Summer's Harvard friends' involvement with the looting of post-Soviet Russia. Or the current state of the Harvard portfolio. It seemed like a whitewash.

@Jian
I've heard about editorial 'strategies' of writing lazy, adoring profiles of people in power, in exchange for 'access'. But one can't help but wonder, access for what? For writing some more a$$-kissing, adoring pieces??? Main stream press is as despicable as ever in their laziness and deference of power and money.

It is all about selling soap and people will tune in and see your ads if you can book powerful people.

I love Baker and DeLong, too.
It's not zero sum. Both have blind spots. Yep, even Krugman does (politics is his weakness) Economics is that way. People are flawed.

Prog blog comment threads seem to be full of non-flawed people, however.

Saying Glass Steag is *the* cause or disgreeing on the primacy of its place among the causes are two entirely different things.

"Prog blog comment threads seem to be full of non-flawed people, however."

What the hell are you talking about, Mercanus? Summers pontificates for decades about what the best economic policies would be. From positions of power, he browbeats dissenters -- both verbally and by threatening to squash them by placing his massive buttocks on their heads and squatting -- by bemoaning their economic ignorance. Summers does this year after year even though he is the dumb sh*t who is helping to make a god-damn mess of everything. And even when it becomes clear that this elephantine turd knows nothing about how the real world works and that he is a danger to every breathing human being on the planet, he gets promotion after promotion.

So finally -- FINALLY -- when there's a tiny itsy bitsy of well deserved criticism of this deregulating maniac, you come along and bitch and moan about how no ones perfect. And getting all 'he who is without sin should cast the first stone' on us. You got your priorities all eff'd up, Mercanus.

"Slash government spending and cut taxes, and let the private sector and the citizenry get on with living life!"

Ha ha ha, good one. Of course in California, where they've actually took this aproach, they aren't laughing right now.

If there is anything that de-regulation has taught us is that,
Capitalism, especially in the financial sector, needs to be aggressively regulated with a new SEC with a new budget so it can have real "teeth".Goldman Sachs and other financial banks create nothing. Their speculation for want of a new growth market to generat billions of dollars in fees have brought unregulated derivatives that can collateralize debt via loan default-swaps. This recession that we are in is not caused by the sub-prime mortgages but by the derivative markets. Krugman was right about the fact that too long have economists been dazziling everyone with their mathematical prowess that none of them saw this recession coming. A must reading for most people is a book called Culture Against Man by Jules Henry.

Go get 'em Dean. One of the last honest men standing.

"Bank profits now stand at a record share of GDP and the bonuses at Goldman are as big as ever. What did the critics get wrong?"

Absolutely nothing.

DeLong is a committed Rubinite who has sold his character to throw in with the lords of GS and the Fed at every opportunity. Go through his archive and read the long chain of pieces fell*ting Goldman or weaseling through exoneration of the powers-that-be in economics: it's not just a matter of knowing which side his bread is buttered on, but that, having not yet banked the full rewards of his obeisance, he is attempting to justify his cravenness to his very considerable pride. Viva Dean and the others who have the courage to speak truth to power.

That New Yorker article was unreadable; thank you Dean for sledging it.

"In terms of the bank bailout, some of us were worried that we were effectively taxing the whole country to support the rich bastards that put the economy in the toilet."

When does the shooting start?

TAX THE RICH, they've had a FREE ride on welfare long enough.

The worst fears of some of us who said that the stimulus was too small were that we would be sitting around with 10 percent unemployment for a long period of time and that stimulus would be discredited. That pretty well describes the world we live in, even that may not be the case in New Yorker land.

Why are you so quick to pronounce stimulus as discredited? And why concede at this point that nothing further will be done to get the unemployment rate down? Why not try arguing that the stimulus is working, and that another dose will make it work even better? Give the political system a positive argument to buy into, rather than constantly berating it. I'm an avid fan, Dean, but you don't do your policy prescriptions any favors by always framing them as challenges to an inherently corrupt power structure.

In terms of the bank bailout, some of us were worried that we were effectively taxing the whole country to support the rich bastards that put the economy in the toilet. Bank profits now stand at a record share of GDP and the bonuses at Goldman are as big as ever.

I think it's too early to say that these 'worst fears' have been realized, either. Bank profits as a percent of GDP is a near-meaningless statistic, given how subject to manipulation their earnings statements are & how much the GDP has fallen in the past 18 months. More importantly, what happens to the banks over the next few years is very much open to question, very much subject to policy-making that is still taking place, and very much more important than the level of bonuses at Goldman this year.

Not saying those aren't outrageous, but i do think there's too much outrage in the air right now - an environment like this ALWAYS favors the reactionaries.

The New Yorker has a history of writing fawning, credulous pieces: just look back at the glowing profile of Lenny Dykstra, the baseball player-cum-financier. It was only a matter of weeks or months after the profile appeared that his "empire" crumbled and his hucksterism was laid bare -- no thanks to the article, which was marvelously written but that's really not the point is it?

I have not read much of this New Yorker piece, but I would be careful about assuming fawning. Early in the Bush years they did pieces on Condi Rice and Cheney which might be taken as fawning but had some pretty damning understated stuff in them if you know where to look.

This recession that we are in is not caused by the sub-prime mortgages but by the derivative markets. Krugman was right about the fact that too long have economists been dazziling everyone with their mathematical prowess that none of them saw this recession coming.