Some politicians and commentators are calling for the resurrection of the Glass-Steagall Act, saying it was partially responsible for the 2008 financial crisis.

Robert Pozen, chairman of MFS Investment Management, writes in an editorial in the current issue of Forbes that would be a bad idea, saying that its 1999 repeal “was instrumental in resolving the liquidity squeeze on Wall Street.”

The 1933 law was only loosely enforced in the first place, Pozen says, noting that banks were still investing in bonds, offering mutual funds, underwriting government securities and executing securities trades. The only thing the law effectively prevented them from doing was underwriting corporate stocks and bonds.

What actually triggered the crisis was insolvent traditional loans, rather than mortgage-backed securities, Pozen says. Further, “the repeal of Glass-Steagall facilitated the rescue of four large investment banks and thereby helped reduce the severity of the financial crisis,” most notably Bear Stearns, Merrill Lynch, Goldman Sachs and Morgan Stanley.

Lastly, Pozen says, “Given the globalization of the financial markets, it would be foolhardy to prohibit U.S. banks from engaging in securities activities that are performed by their global competitors.”

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