Journal of Economics and Development Studies

Did the Reversal of the Glass-Steagall Act Lead to the Subprime Mortgage Collapse and the Great Recession?
LeRoynda Brooks

Abstract
Did the exponential growth in FHCs following the overturn of the Glass-Steagall Act lead to the Federal Reserve’s inability to regulate FHCs and thus serve as the catalyst for the failures in the subprime mortgage sector and finance industry? Could the recession have been avoided if the Glass-Steagall Act was extant or was the recession the result of the simple nature of banking practices? Economists have theorized that the absence of timely government intervention coupled with inefficient monitoring of financial entities and dubious practices within the banking sector were contributing factors to the 2007 economic slowdown. Policymakers have hypothesized that the overturn of the Glass-Steagall Act was the catalyst for banking practices that led to the exponential growth in subprime mortgages and the subsequent mortgage defaults, which imposed negative externalities on the finance industry and U.S. economy. Conversely, other analysts have argued that the nature of the banking sector could have produced economic the downturns observed in the last recession, and that a reversion to antiquated financial policies may not obviate future slowdowns.

Full Text: PDF     DOI: 10.15640/jeds.v4n1a1