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How to Trade the 'Too-Big-to-Fail' Banks — and How to Make Them Safer

Let's look at the issues affecting the "too-big-to-fail" banks and their stocks.

Big banks have been getting bigger since Congress repealed the Glass-Steagall Act in 1999, allowing banks to become financial services supermarkets.

The Glass-Steagall Act was enacted in 1933 following the Crash of 1929. It sought to resolve abuses that caused the stock market crash and began the Great Depression. During the eight years of economic boom that ended in a bust, the stock market became a bubble set to pop. Market manipulation and pump and dump schemes were the order of the day and law and order needed to be re-established.

Investigations revealed obvious fraudulent activities which were prevented from happening again in 1933 when Glass-Steagall became law. Oversimplified, banks would be banks taking deposits and making loans. Brokers would be brokers underwriting and selling securities.

Must Read: Will MetLife Be the Next Too-Big-to-Fail Insurer to Face a Breakup?

Today, it would not be that difficult to separate these business functions once again. Each of the four "too big to fail" money center banks have huge businesses on both sides of the ledger.

For example, Bank of America (BAC - Get Report) could spin off Merrill Lynch. JPMorgan Chase (JPM - Get...


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