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November 10, 2009 12:55 PM

Rodge Cohen: Glass-Steagall Repeal Not Responsible for Financial Crisis

Posted by Brian Baxter

In recent months we've heard more than a few lawyers blame the repeal of certain provisions of the Glass-Steagall Act for the 2008 economic crisis. In an interview with The Daily Deal, H. Rodgin Cohen, chairman of Sullivan & Cromwell, calls that a myth.

"Lehman, Bear Stearns, the GSEs, Washington Mutual, and Wachovia [had nothing to do with Glass-Steagall]," Cohen told The Deal. "Much of the problem was the unregulated mortgage bankers and brokers, who ultimately polluted the system."

Cohen isn't the first to argue that point, as others have noted that saving what was left of Bear Stearns and Merrill Lynch would have been difficult (if not impossible) with Glass-Steagall's former prohibition on commercial banks owning securities firms.

In his latest chat with The Deal--click here and here for videos of his other interviews on Lehman's failure and the Wall Street meltdown--Cohen also stood up for regulators, telling The Deal that they weren't asleep at the switch.

"There were efforts to constrain commercial real estate lending, which people seem to forget, and to impose more stringent guidelines on residential lending," Cohen says. "But there was pushback and it didn't really take the way that it could have."

Looking ahead, Cohen, featured prominently in a new book on the financial crisis by The New York Times's Andrew Ross Sorkin, warns that a future without more regulation could be disastrous.

"We should not have big swaths of the financial services industry either totally unregulated or basically unregulated," Cohen says. "We clearly need a resolution regime that is more attuned to the exigencies of a situation in which large financial institutions are in jeopardy. If we don't get it now, we are just sowing the seeds for a financial crisis we won't come out of."

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