How to make banks riskier

For some reason many politicians don't seem to understand what diversification means. Just as economists advise individuals to hold diversified portfolios, the same reason applies to other institutions. Returning to the Depression era rules, as McCain and Cantwell propose, will make the system riskier.

The bipartisan duo’s bill would reinstate the Depression-era law that built a wall between commercial banking and the riskier activities of investment banking. The separation — originally set up in the Glass-Steagall Act — was repealed in 1999.

But reinstating Glass-Steagall has become something of a rallying cry among progressives, as well as some conservatives. They believe that allowing banks to provide all services to all people creates the very sort of “too big to fail” institutions that threatened the stability of the global financial order in 2008. . . .

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