I arrived in DC as a new SEC staffer in time to witness my Director sleeping on his office floor at nights, wrought with concern over what Drexel Burnham’s collapse meant for retail lenders. He headed up the banking group.

Awful balance sheets of insolvent banks & S&L’s were the norm. Non-performing loans were routinely 4 to 5% of the portfolio, principally from lousy commercial asset quality . They had names like CalFed and Bank of New England and were making a last desperate try at raising public capital to meet their regulatory minimums and stave off receivership.

I managed dozens over three years. The banks and thrifts serially underestimated their loan loss reserves as another way to avoid violating their minimum capital requirements. The foreclosures occurred in perpetual waves and crushed them anew each quarter. Another twenty would fail.

The Office of Thrift Supervision (OTC) was born for oversight to assure similar lending practices would not occur again and the Resolution Trust Corp. (RTC) was created to liquidate the planet of foreclosed real estate held by the Feds. Asset prices deteriorated sharply.

The receivership and liquidation process lasted over a half-dozen years and was in wind-up by 1995. Our current breakdown in lending practices began in earnest only a few years later. By 2002, long rates began to come in to 50 year lows. Liquidity built from cash with no place to go after the collapse of equity markets in 2000 and burgeoning Asian trade. It needed an asset to absorb its massive cash flows, while providing increasingly hard to find return with perceived low risk.

Bankers accommodated and morphed their institutions into a volume business. They adopted the real estate agent’s model of taking a fee and leaving asset risk to someone else. This married well with the debt markets honing of its process for asset-backed securitization.

With the cost to fund the leveraged housing asset falling, its price could rise. Simultaneously, the Federal Reserve was aggressively easing short rates to appease anxious equity markets, 2 years into a bear phase that shaved 80% off the Nasdaq’s March, 2000 highs. This allowed ARM’s to price the housing asset at funding costs that appeared cheap, through a 3 year lens. Consumer’s drank the kool-aid and willingly took leaps they could not span, for the illusion of a rapid equity build.

Repeal of Glass-Steagall is also getting a truckload of blame in DC circles. It’s valid when you recognize dereg incentivized the prior generation of bankers to overreach for earnings reasons too. At the moment the crumbs of a monetary system collapse fueled by dereg were being swept up, legislators yanked on the dereg lever even harder and let an unwatched industry of investment bankers into regulated banking’s party. Welcome, Bear Stearns.

But Glass-Steagall repeal is really just fog around the larger failure of stewardship in the executive offices of two consecutive generations of American banking.