Following his annual meeting with Berkshire Hathaway investors over the weekend, Warren Buffett sat down with Becky Quick from CNBC for a special edition of Squawk Box. At exactly 6:52 AM, they started to discuss whether or not the banks today are “too big to fail.” Andrew Ross Sorkin (who, as author of the best-selling book Too Big to Fail, certainly understands this topic) asked Buffett about Glass-Steagall, and if he thought the 2008 crisis would have happened if the act hadn’t been repealed. Buffett’s answer essentially was, well, it’s complicated.
For those who aren’t caught up on their Depression-era history, the Glass-Steagall Act of 1933 effectively built a wall on Wall Street, separating banks that did risky investing from those that did basic lending. In 1999, President Clinton signed a bank deregulation bill, Graham-Leach-Bliley, that broke Glass-Steagall as if it were… glass. Graham-Leach-Bliley is often cited as a cause of the ‘08-‘09 meltdown. Warren Buffett here acknowledges that while the act likely did contribute to the financial meltdown, it’s much more complicated than “too big to fail.” Buffett’s exact words, actually, were “size did not solve the problem!”