Era 04 · 1999 — 2002

The Deregulation Era

Lag

Rules removed

Pulse cycle

4.5s

The late 1990s and early 2000s saw the most dramatic loosening of financial regulation since the 1920s. Glass-Steagall was repealed. OTC derivatives were explicitly exempted from CFTC oversight. When Enron and WorldCom showed what the new environment produced, Congress responded with Sarbanes-Oxley — but only on corporate accounting, not on the structural changes that had already happened inside the banks themselves.

Events in this era

Nov 12, 1999

Glass-Steagall repealed

The Gramm-Leach-Bliley Act repealed the 1933 Glass-Steagall separation of commercial and investment banking. Citicorp had already merged with Travelers (which owned Salomon Smith Barney) the year before in anticipation. Banks could now lend, trade, underwrite, and sell insurance — all on the same balance sheet.

Enabled the 'too big to fail' bank of 2008

Jul 30, 2002

Sarbanes-Oxley passed

After Enron and WorldCom collapsed into accounting fraud, Congress passed the most significant corporate-governance legislation since 1934. CEOs and CFOs had to personally certify financial statements. Internal-controls requirements became extensive. Auditors were restricted from also providing consulting services to the same companies.

Ended the era of the 'consulting auditor'

Dec 21, 2000

Commodity Futures Modernization Act

Passed in the final hours of the Clinton administration, inside a larger omnibus budget bill. Explicitly exempted over-the-counter derivatives from CFTC oversight. The 'Enron Loophole' (for energy derivatives) was a specific carve-out. The Act created the legal space in which CDOs and credit default swaps could grow without disclosure requirements.

Unregulated OTC derivatives market enabled

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