A Promised Land by Barack Obama:
For similar reasons, the growth of the non-bank financial sector made Glass-Steagall’s distinction between investment banks and FDIC-insured commercial banks largely obsolete. The largest bettors on sub-prime mortgage securities—AIG, Lehman, Bear, Merrill, as well as Fannie and Freddie—weren’t commercial banks backed by federal guarantees. Investors hadn’t cared about the absence of guarantees and poured so much money into them anyway that the entire financial system was threatened when they started to fail. Conversely, traditional FDIC-insured banks like Washington Mutual and IndyMac got into trouble not by behaving like investment banks and underwriting high flying securities but by making tons of subprime loans to unqualified buyers in order to drive up their earnings. Given how easily capital now flowed between financial entities in search of higher returns, stabilizing the system required that we focus on the risky practices we were trying to curb rather than the type of institution involved.
And there were the politics. We didn’t have anything close to the votes in the Senate for either reviving Glass-Steagall or passing legislation to shrink U.S. banks, any more than we’d had the votes for a single-payer healthcare system. Even in the House, Dems were anxious about any perception of overreaching, especially if it caused the financial markets to pull in their horns again and made the economy worse. “My constituents hate Wall Street right now, Mr. President,” one suburban Democrat told me, “but they didn’t sign up for a complete teardown.” FDR may have once had a mandate from voters to try anything, including a restructuring of American capitalism, after three wrenching years of the Depression, but partly because we’d stopped the situation from ever getting that bad, our mandate for change was a whole lot narrower. Our best chance for broadening tha mandate, I figured, was to notch a few wins while we could.