A few days ago, Sandy Weill, the architect of the Citi explosion into TBTF status, came out in favor of Glass-Steagle. Then former Obama adviser Steven Rattner (in the Times) told him he was, shall we say, wrong?
Personally, I wouldn't trust either of them as far as I could throw Bernie Madoff, but you have to admit: a return to Glass-Steagle would sharply reduce the likelihood of certain risk-addicted psychopaths gambling with federally insured deposits. On the other hand, straightforward investment banks, as Goldman-Sachs was before it became a "holding company" to take advantage of government bailouts funds, were "too big to fail" even without government guarantees. (Also, let us not forget AIG.)
Rattner is right when he says that Glass-Steagle would not have prevented the recent banking crisis and the current economic malaise — but he is wrong when he suggests more and better regulation could keep the banking industry under control. The only regulation that might work would be to put strict limits on the sizes of all banks, both commercial and investment. No commercial bank should be so large that it cannot be efficiently unwound by the FDIC, and no investment bank should be so large that allowing it and its investors to go broke would have a major impact on the whole economy.
So, how do you get from here to there? Beats me.