The Glass-Steagall Act was repealed in 1999. Since the act was repealed, banks could now combine their commercial banking and their investment banking activities. Banks such as Citi and insurance firms like AIG were heavily investing in risky securities such as mortgage back securities and collateralized debt obligations. The mortgage back securities are what fueled the subprime mortgage crisis.
Senator Byron Dorgan was one of the few congressmen to vote against repealing the act. In this video, the senator predicts what will happen if the act is repealed. He correctly predicts the notion of “too big to fail.” This is when a firm gets so large, that its financial troubles will effect the entire United States economy. In order to prevent a financial disaster, this large firm is bailed out by the government. We saw this when AIG and countless other financial institutions were bailed out.
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Such an astonishing event. To be able to predict such an event so far in the future is admirable.