> >Many of the loans or credit facilities extended to these companies were
> >collateralized at least partially by stock with attached trigger levels
>
> I'm sure I'm continuing to be a naif, but wasn't this illegal under
> Glass-Steagal back when we had a Glass-Steagal? I mean if banks can't own
> stock as an asset, how can it be legal to own a stock-backed asset?
>
You could not possibly ever be a naif, Michael.
The practice was technically made illegal under Glass Steagal, mostly due to a $100 million stock backed loan that went bad in 1929 for Morgan, because issuance and deposit / loan business was split up. I think the exact legislation was written to avoid banks being able to repackage bad loans and resell them to investors. Of course, now that's done all the time. Has been since the CMOs of the 80s. (discussed in both Liar's Poker and Wall Street). Today, the repackaged loans are parts of various securitization deals or CDOs (collateralized (corporate) debt obligations) where an investor can't tell which loan they're getting, because they're buying the risk of a whole portfolio of loans.
Also now, banks can own stocks as assets, but at the holding company level. Actually, I'm not sure of the year, maybe some else on the list can chime in on that, but part of the pre-repeal swipes at Glass Steagall included allowing a bank holding company to act above the bank level, to pave the way for investments and acquisitions.
That piece of deregulation enabled insurance companies to merge with banks before securities firms could in 11/99 (though Citi - Travelers - Salomon merged to become Citigroup in 10/98). At the holding company level, a bank can technically own anything, it doesn't even have to be financially oriented. Separately, banks all have off balance sheet pools of assets called conduits, that can also own anything as long as they possess an appropriate amount of regulatory capital backing them on the bank balance sheet. Mostly these conduits are of investment grade loans and bonds that the banks buy back from their debtors or each others' debtors.
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