Getty Images
Representative Jim Leach (R-Iowa) and Senator Phil Gramm (R-Tex.)
Sponsored the Gramm-Leach-Bliley, or Financial Modernization Act, which repealed provisions in the Depression-era Glass-Steagall Act that prohibited a bank holding company from owning other financial firms and opened the way for banks to create complex financial derivatives such as those backed by subprime mortgages. The bill was signed into law in November 1999 by President Bill Clinton. By blurring the authority that such regulators as the Securities & Exchange Commission and Commodity Futures Trading Commission had over various instruments, the law helped pave the way for the crisis.
Leach could not be reached for comment, but Gramm responds by denying that the law fostered a more lenient regulatory environment for bank holding companies. He argues that the law was the first step toward making the Federal Reserve "a super-regulator" of bank holding companies. "If Gramm-Leach-Bliley created the environment for this problem, why didn’t it happen in Europe, where" banks have been permitted to invest in securitized and other financial products for 100 years, he asks.
Big Wheels or Small Cogs? Big Wheels
