Now that we're coming upon the next Presidential election, it is important to remember that every vote counts. The repeal of the Glass-Steagall Act shows how important just one vote really is.
Some people believe that the Glass-Steagall Act, which was slowly repealed through the Depository Institutions Deregulation and Monetary Control Act and Gramm-Leach-Bliley Act, was a major contributor to the current housing bubble.
The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor, drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock-market crash.
The purpose of the Glass-Steagall Act was to control speculation and prohibit a bank from owning other financial institutions which would create a conflict of interest, such as investment banks and insurance companies. The Glass-Steagall Act was enacted in 1933 after excessive risk-taking that contributed to the Great Depression. Jean-Marie Eveillard, of First Eagle Funds, has said: "Glass-Steagall protected bankers against themselves.Bankers are sheep. They don't mind going over the cliff if everyone else goes over the cliff."
The reason banks were giving out such risky loans is that they were able to securitize them and sell them as mortgage backed securities and other collateralized debt obligations to investors. With the ability to both create loans and then underwrite, securitize and sell mortgage backed instruments under one roof, it is easy for banks to create a ponzi-like scheme.
PBS has a very good history of the repeal of the Glass-Steagal Act on their website. The financial industry had been lobbying to remove the regulations since the 1960's, spending over $200 million in it's lobbying efforts and $150 million more in political contributions just during the 1997-1998 election cycle.
It kept getting hung up in the House but finally passes in 1998 with a vote of 214-213 . Just one vote might have prevented this whole mess. [updated: 9/21/2008] Ooops! I mistakenly referenced the Financial Services Act of 1998 thanks to Kay who pointed that out in the comments. The Financial Services Act of 1998 was also one of Phil Gramm's legislations and contained the same provisions regarding allowing commercial and investment banks as well as other financial institutions to merge. Phil Gramm at the time was a Republican Senator or Texas and is currently Senator John McCain's economic advisor. Maybe it's unofficial now after he called us a "nation of whiners".
The vote in the house for the Gramm-Leach-Bliley Act wasn't as close, 362-57 in favor. About 75% of Democrats and 93% of Republicans in The House voted in favor of it. The Senate vote was 90-8 in favor. All but 6 Democrats and 1 Republican voted in favor. One Republican, Senator John McCain didn't vote. In Kay's comments she mentioned that this was a non-partisan action and I provided some information on how each party voted, which I didn't do when I originally wrote this. Both parties voted for this to get passed in a Republican majority Congress and it was signed into law by a Democrat, President Bill Clinton. The bill had more than 2/3rds of the votes in both houses so it was pretty much veto proof. I'm kind of happy I made the mistake because I'd like to read the full text of each of the two legislations to see what the difference was. Gramm's first legislation had much more opposition from both parties.
Looking into it a little more, it seems the Financial Services Act of 1998 came back in 1999 then after the House and Senate both voted for it, they got together and worked out their differences and the bill was overwhelmingly approved, as can be seen by the votes above.
Not everyone was happy with the legislation though. I ran across an Amendment by Democratic Senator Byron Dorgan that would limit derivatives. The amendment reads: "To prohibit insured depository institutions and credit unions from engaging in certain activities involving derivative financial instruments." Unfortunately it was voted down in a voice vote.
You can see this video warning about what would happen if Glass-Steagall was repealed. It's pretty much what's happening now.
After the Great Depression, federal (taxpayer) money was used to insure deposits and loans. Part of the price for that insurance was regulations that would keep banks in line. If the financial institutions want the regulations to go away, so should the safety net.