In assessing the recent damage on Wall Street, both John McCain and Barack Obama have placed the blame on a lack of government regulation.

While neither candidate has mentioned it by name, at issue is the Glass-Steagall Act, which regulated investment banks from 1930s until Congress repealed the law in 1999. In a CNBC interview Tuesday, U.S. Sen. Richard Shelby of Alabama, the ranking Republican on the Senate banking committee, said reviving Glass-Steagall regulations was “something we should look at.”

But several corporate lawyers around town and a legal academic argue that the lack of Glass-Steagall rules did not lead to the collapse of Lehman Brothers, to the federal bailout of Bear Stearns and AIG, and to Merrill Lynch’s sale to Bank of America Corp. Instead, they say, the repeal of the law remains a part of the solution to U.S. financial turmoil.

If the Glass-Steagall rules were still in place, Bank of America could not have rescued the failing Merrill Lynch, says Jones Day banking partner Ralph F. “Chip” MacDonald III.

Passed during the Great Depression, the Glass-Steagall Act separated investment banks like Merrill Lynch and Bear Stearns from commercial banks like Bank of America and SunTrust. President Franklin D. Roosevelt’s first act in office in 1933 was to sign Glass-Steagall into law, in order to restore depositors’ confidence in commercial banks by limiting their ability to engage in securities trading, according to Reuters. Glass-Steagall also created the Federal Deposit Insurance Corp., which insures depositors’ accounts in commercial banks.

But Congress and President Clinton repealed Glass-Steagall in 1999 with the passage of the Gramm-Leach-Bliley Act, which allowed commercial banks and investment banks to compete with each other. The repeal of Glass-Steagall led to the combination in 2000 of the investment J.P. Morgan and the commercial bank Chase Manhattan Bank.

Such combinations of investment banks and commercial banks have little to do with the current problems on Wall Street, said Powell Goldstein banking partner Walter G. Moeling IV. Instead, the problems have been caused by the problems associated with the sub-prime mortgage market and a huge increase in loan defaults.

“The sub-prime problem was driven by Wall Street firms that needed a product to sell” in securities tied to sub-prime mortgages, Moeling says. “The Democratic political left love the idea of home-ownership, and the Republican political right love the idea of making money off home ownership. It was a perfect marriage where nobody wanted to say uncle or that the king had no clothes on.”

The vast amounts of money that had been flowing into sub-prime mortgages real estate masked more widespread problems in the real estate market, Moeling says.

“So long as the excess sub-prime money was flowing to speculators, houses were being sold and homebuilders were getting loans to build,” Moeling said. “That has nothing to do with the separation of commercial and investment banks” by Glass-Steagall, he says.

Glass-Steagall would not have prevented Wall Street’s aggressive move into complex, but risky financial instruments like credit derivatives, adds Mercer University law professor David G. Oedel.

“There’s no question that the use of derivatives spread the problems in the sub-prime mortgage market,” Oedel said. “But I’m not thinking Glass-Steagall would have saved the day here. Credit derivatives and the securitization of loans would have occurred whether Glass-Steagall was up or down.”

While a return to Glass-Stegall’s regulations might not come to pass, another type of regulation seems possible. In March, U.S. Treasury Secretary Hank Paulson proposed a massive overhaul of U.S. financial regulations, such as merging the Securities and Exchange Commission with the Commodities Futures Trading Commission and giving new powers to the Federal Reserve Bank.

Some type of regulation for Wall Street is probably in order, Mercer’s Oedel said.

“The players in these markets have demonstrated they were incapable of regulating themselves effectively,” he said. New regulations are needed to “help evaluate the extent to which transactions are covered effectively with proper collateral.”