The USFG should reinstate the Glass- Steagall Act.

Glass-steagall was an overreaction to the Great DepressionAs a response to the crisis, and more specifically, the mass failure of banks, the glass steagall act was created to completely separate investment banking from commercial banking. However, apart from theoretical arguments, there's no real reason to believe that this would have solved the problem. Commercial banks were indeed being speculative during pre-depression, however, whether or not the public was “duped” into investing in securities by these banks is yet to be proven. In fact, research done by Rajan & Kroszner at the University of Chicago tells us the opposite – that the people did rationally account for possibilities in conflicts of interest. Consequently, the commercial banks would need to remain cautious in their underwriting activities, otherwise they would undergo a loss on the securities. [1] To sum it up, they tested this theory by assessing the performance of securities that were “affiliate-underwritten” (meaning underwritten by commercial banks engaging in investment-banking activity) against those that were underwritten by purely investment banks. Eventually, the conclusion was reached that the issues underwritten defaulted less than that of investment banks'. This would mean that the affiliate-underwritten issues were expected to perform better, and that the banks were not fooling the investors.Furthermore, glass-steagall would have also prevented acts that helped mitigate the financial crisis of 2008. For example, many banks were on the verge of bankruptcy during after the burst of the massive housing bubble. Specifically, banks like Merrill Lynch and Bear Stearns , who had written down billions in losses, would have quite possibly gone down like the Lehman Brothers, had they not been acquired by the Bank of America and JP Morgan. Additionally, these banks, along with the Lehman brothers that failed previously, were purely investment banks, and their failure was completely unrelated to glass-steagall. If glass-steagall was in effect, Merrill Lynch and Bear Stearns would have undergone bankruptcy, which would have only strengthened the mass panic in the markets, and cause failures of other banks around the U.S. [2, title “Sale to Bank of America”]In fact, to prevent other bank failures, it is also suggested that said banks of larger size be required to hold minimum levels of equity to cushion the effects of a similar crisis to both the stock market crash and the bursting of the housing bubble. Another study conducted by Hart and Zingales confirms this by suggesting that capital regulation on “too big to fail” banks can prevent bankruptcy of large financial institutions without the need for a massive taxpayer-funded bailout. [3]Glass Steagall's demise did not cause the 2008 crisisHere I intend to maintain, while tying to my previous argument that banks were not tricking clients into purchasing low-quality securities, that the GSA's presence would not have stopped the '08 financial crisis, because its cause can be attributed to low-quality securities being sold by banks that are not affected by glass steagall. As I mentioned in my previous argument as well, the most notable bank failures (or near-failures) are Merrill Lynch, Bear Stearns, and the Lehman Brothers. All three of which purely engaged in investment banking, and had ended up writing billions in losses due to poor speculative activity[4, banks mentioned are in list]. The banks that failed had little to do with glass steagall, therefore rendering glass-steagall ineffective in preventing the financial crisis. If blame were to be directed, it could be more effectively diverted to non-affiliated investment banks, and toward public attitudes towards house prices. The investment banks are to blame for the underwriting of lower-quality securities, and the public for assuming that house prices only go up. Additionally, it could also said that the federal reserve should have raised interest rates to ease up on the margin purchasing that investors were engaging in.Sources[1] http://citeseerx.ist.psu.edu...[2] https://en.wikipedia.org...[3] http://faculty.chicagobooth.edu...[4] https://en.wikipedia.org...