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Stacey Vanek-Smith: The Glass-Steagall Act was passed in the ’30s to stop retail banks from doing investment banking and vice versa. It was repealed 10 years ago today. And now there’s a push to bring it back as Alisa Roth reports.
Alisa Roth: Before Glass-Steagall, banking was a free-for-all.
Jeff Madrick is a senior fellow at the New School. He says there was all kinds of funny business.
JEFF MADRICK: Banks would lend money to the companies and then sell shares to the public or tout the shares to the public. They would have all kinds of investment vehicles that were suspect.
The Glass-Steagall Act stopped that. But by 1999, there were so many loopholes the law didn’t do much any more.
Edward Kane is a finance professor at Boston College. He says the law was like the old walls you see around European cities.
EDWARD KANE: We admire them and look at them as a relic of an age where there was simpler munitions and simpler ordinance.
He says there’s no point in trying to reinstate the law. Because companies would find a way around it again. But Madrick doesn’t agree.
MADRICK: There are quite a few ways to break the industry up that I think could be very constructive and eliminate the likelihood of these crises again.
Like bringing back basic retail banking and forcing investment banks to have more capital reserves.
In New York, I’m Alisa Roth for Marketplace.