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What the Repeal of Glass-Steagall Set in Motion

By William Paatalo – Private Investigator / Expert witness – bill.bpia@gmail.com

Many Americans have heard of the Glass-Steagall Act, but few understand how its repeal laid the foundation for the housing collapse, securitization fraud, and the foreclosure crisis that still reverberates through our courts today.

A Wall Between Risk and Security

Passed in 1933, Glass-Steagall separated traditional banking from investment banking. In simple terms: banks that held your deposits and gave you a mortgage couldn’t also package and sell those loans as securities. The law was designed to protect ordinary people from the reckless speculation that caused the Great Depression.

1999: The Wall Comes Down

In 1999, Congress passed the Gramm-Leach-Bliley Act, repealing the core protections of Glass-Steagall. Suddenly, megabanks could originate loans, securitize them, sell them to investors, and bet against them—all under one roof.

Enter Derecognition and the Shadow System

This unleashed the modern era of mortgage securitization. Loans were no longer assets held by lenders. They were derecognized—removed from balance sheets—and sold into off-book trusts. These trusts became part of a vast, unregulated shadow banking system where ownership was fragmented, digitized, and often lost entirely.

Meanwhile, servicers and debt collectors stepped in to enforce these phantom debts, long after the original creditor had exited the picture.

The Fallout

When the financial crisis hit in 2008, millions of homeowners were left trying to challenge foreclosures brought by parties who couldn’t prove they owned the debt. Why? Because the note had been split, sold, and derecognized so many times that no real party in interest remained.

A Clash With Consumer Protections

What makes the repeal of Glass-Steagall even more reckless is what lawmakers failed to account for: the catastrophic incompatibility it created with existing consumer protection laws. Statutes like the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Fair Debt Collection Practices Act (FDCPA) were all built on the assumption that a loan would remain tied to a specific lender or servicer accountable under law.

But in the new post-Glass-Steagall world, loans were sold, split, derecognized, and transformed into securities—rendering these protections largely meaningless. There was no longer a single creditor. No transparency. No accountability. The legal framework designed to protect consumers was now completely mismatched with the financial machinery it was supposed to govern.

Why It Still Matters—and Why the Administrative Process Is the Key

Today, the legacy of Glass-Steagall’s repeal is not just economic—it’s constitutional. Borrowers are denied due process. Courts enforce debts that no longer exist in law or in accounting. And regulators still struggle to unwind the web of digital placeholders and nominee owners that now dominate the mortgage landscape.

That’s why the administrative process—when properly invoked—has emerged as the most effective method of restoring balance. Through formal demand letters, conditional tenders, UCC notifications, and IRS reporting (such as 1099s), homeowners can regain control, shift liability, and demand lawful proof of standing. It bypasses judicial bias and reasserts the borrower’s rights within a failing system.

Conclusion

The repeal of Glass-Steagall didn’t just deregulate banking. It created the perfect conditions for derecognition fraud, phantom debt collection, and foreclosure without accountability—while undermining the very statutes meant to protect consumers.

Understanding how we got here is the first step in making sure we don’t stay here.

Restoring integrity starts with exposing the design.

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