Warren Gunnels, Sanders's chief policy aide, explained: "Commercial banks provided the funding to shadow banks in the form of mortgages, repurchase agreements and lines of credit.  Further, commercial banks played a crucial role as buyers and sellers of mortgage-backed securities, credit-default swaps, and other derivatives.  This would not have happened without the watering down of Glass-Steagall in the 1980s and the eventual repeal of Glass-Steagall in 1999."

But experts generally say this is incorrect. "Commercial banks could have done all of those things in the 1960s or earlier, even before the Fed and the OCC [Office of the Comptroller of the Currency] and court decisions began to loosen the strictures of Glass-Steagall," said Lawrence J. White, an expert on financial regulation at New York University's Stern School of Business.


However, James G. Rickards, a former general counsel of the hedge fund Long-Term Capital Management and a fierce critic of the 1999 law, says there was an important cultural shift after Glass-Steagall was repealed. Previously, he said, such shadow-bank loans required permission from the Federal Reserve under an application known as 4(c)(8). "The presumption was it was illegal unless the Fed said you can do it," he said. "After Glass-Steagall, we didn't have to ask permission, and it enabled the banks to do what they wanted."

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