the repeal of glass steagall is irrelevent.
the types of instruments that initially got us into trouble were $2 trillion of sub-prime mortgages underwritten from 2002-2007. that's the countrywides, indymacs, and wamus that didn't have investment banking operations to speak of.
this is all a symptom of the money supply being ballooned by that idiot greenspan.
take a look at this chart. from 1987 to present, greenspan and his protege bernanke more than quadrupled one measure of the money supply, while at the same time, the economy (not pictured) only doubled.
this constant increase in the money supply - which was intended to lower interest rates, encouraged investment banks like bear stearns and lehman and insurance companies like AIG (neither of which had any commercial or home lending operations) to assume huge amounts of leverage - loans and derivatives contracts that were 30-60x a firm's capital. because the fed gave them a false sense of security by keeping rates low. if the fed had not meddled, you would have seen a natural deleveraging process (slow down loans and derivatives contracts) occur.
because leverage only works for you when the market is going up. on the way down, it bites you in the arse.
all this talk about regulation is really moot. the real culprit is the federal reserve.