Reply #13: Gramm-Leach-Bliely Act of 1999 ... its starts there.

[JoePhilly]

That bill allowed financial companies to make a bad loan, and then chop it up into pieces, to be combined with the pieces of other good loans.

The theory was that you could use this approach to spread out the risk from that one bad loan.

In practice, financial companies decided to take lots and lots of bad loans, and chop them up, and then mix the pieces together with even MORE bad loans. And then they would sell these AS-IF there were pieces of good loans included, when there were not.

From 2000 until the collapse, more and more of the financial companies had figured out that you could make lots of bad loans, chop them up, repackage the mess, and then SELL that sausage, passing ALL of the risk to others. But because ALL of the big financial companies were doing it, they were simply passing these nasty loans back and forth, spreading them through out the financial world. Poisoning the financial markets.

Phil Gramm, the architect of this disaster, left Congress shortly after that bill passed. He was then immediately appointed to the board of directors at financial giant UBS. Go figure.