Noam Scheiber and Pat Garofalo note the possibility that a consensus is emerging for a return to the days of Glass-Steagall, the law that prevented commercial banks from doing investment banking work. The latest convert is John Reed, one of the chief proponents of revoking the law back in 1999, mainly, for his part, so he could help create what is now Citigroup. Guess you can't say that all the bankers aren't learning anything from this crisis. Separating commercial and investment banking isn't a bad idea. But don't be fooled: That change wouldn't address the causes of the financial crisis, and it doesn't solve the problem of Too Big To Fail. The banks that were hit first and hardest -- Bear Stearns and Lehman Bros. -- were already separate investment banks with no commercial deposits; AIG wasn't a bank at all. All of those institutions, however, were deeply involved in capital markets and had the potential to cause devastating economic problems if they went into a protracted bankruptcy. That's why it's important to focus more on the "fail" part of Too Big to Fail -- what's really needed is an emphasis on resolution authorities that will allow the government to quickly liquidate any financial institution that gets into trouble without causing adverse affects on the economy, whether it is a commercial bank, investment bank, or neither. Combine those authorities, of course, with measures that encourage the banks to shrink and stricter prudential regulations, and we'll have come a long way from 2008.Further Reading: The Myth of Too Big to Fail.-- Tim Fernholz
