In a post last April put forward a case for considering more responsible ways of using information in markets. I would like now to address a problem that stems from Gramm-Leach-Bliley which may have played a larger role in the current market collapse than problems of information, the lack of necessary interdependence between different financial institutions that arose out of cross sector integration.
When Gramm-Leach-Bliley repealed the restrictions from Glass-Steagall which prevented several different types of financial institutions from merging, each class of which performed different market functions, it removed and important barrier which served to assist in preventing bad transactions and toxic securities. That barrier was the need to do business with other institutions to accomplish certain kinds of transactions. The merging of differing types of financial players into single businesses allowed internal transactions to take place which created securities that would not have been created had these securities had to have been created through the cooperation of several different businesses.