Former Citigroup CEO says ‘Break Up the Megabanks’

Former Citigroup CEO, Sandy Weill, puts forward some very common sense solutions to the problems of U.S. finance, break up the big banks, separate commercial banking from investment banking (Glass-Steagall) and allow for the economy to be protected from risk taking, while also encouraging creativity in the finance sector. He is not the first insider to make these types of recommendations, see Cracks in the Pillars of Power, but what is interesting is the reaction of these business journalists. They are shocked Weil would say such things. Over and over they try to get him to disavow the comments — ‘is this what you really mean!?’ And, Weil digs in deeper — ‘yes, this is what I really mean.’ It shows the incredibly poor reporting of the corporate media that they would find common sense solutions to be too radical to consider.

Dismantling the Big Banks and Separating Commercial and Investment Functions are the Only Way to Restore Banking

Widely credited with inventing the ‘supermarket model’ of financial firm, Sandy Weill’s reversal speaks volumes

Common Dreams
July 25, 2012

Sandy Weill, former CEO of banking giant Citigroup and widely regarding as the creator of the “financial supermarket” model that dominates global capitalism, made waves today by saying that he believes the largest US banking conglomerates are unnecessary, harmful, and should be broken up.

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill said to CNBC’s morning financial show “Squawk Box” on Wednesday.

Given an opportunity to walk back his comments by the show’s moderators, Weill refused and clarified that his position was exactly as he stated it. When the moderators suggested he was being tougher on Wall Street than former Fed Chair and Obama financial advisor Paul Volcker, Weill said, “I don’t know if it’s tougher or not, but I want to see [the United States] to be a leader” when it comes to financial industry reform.

Weill — no friend to Occupy Wall Street-type activists or others on the progressive left who have called for busting up the nation’s biggest banks and reinstating the Glass-Steagall act — suggested that dismantling institutions like Citigroup and Bank of America and separating their commercial banking and investment arms is the only way to rebuild the financial industry’s reputation in the wake of the financial calamity they caused in 2008.

“Sandy Weill advocating for the reinstatement of Glass-Steagall is among the biggest flip-flops imaginable,” writes Mother Jones’ Kevin Drum. “In political terms, it would be akin to Rick Santorum announcing he was becoming a GLAAD spokesman.” And continues:

To some, Weill’s sudden about-face reeks of hypocrisy. Others are picking it over for evidence of ulterior motives. (Could Weill be trying to undermine his former protégé and another too-big-to-fail banker, JPMorgan CEO Jamie Dimon?)

Who knows? It’s actually not all that uncommon for elder statesmen who are no longer running things to have a change of heart, and it seems likely that’s what’s happened here. And like other similar U-turns, it probably won’t have any impact at all. Nonetheless, it’s pretty intriguing. When even Sandy Weill thinks banks have gotten too big to fail, is there anyone left to disagree?

Sanford "Sandy" Weill

Photograph by Charly Kurz/laif/Redux
Sanford “Sandy” Weill

Sandy Weill’s Untimely Second Thoughts

By Roben Farzad
Business Week, July 25, 2012

In their 1998 megamerger, Citicorp and Travelers Group execs clinked flutes over the advent of the financial supermarket: one-stop shopping for investment banking, certificates of deposit, proprietary trading, and the subprime falafel that wound up poisoning the entire economy. Sanford “Sandy” Weill, the architect of that deal, went on to have a hellish decade. In 2002, his name featured prominently in Eliot Spitzer’s conflicted equity-research investigations. Weill stepped down as Citigroup’s (C) chief executive officer a year later and relinquished his chairman title in 2006. By 2008 and 2009, with his collapsed supermarket having received more government bailout money than any other bank, Weill became above all a cautionary tale of hubris that led to the meltdown. (Time magazine named him one of the 25 people to blame for the financial crisis.)

On Wednesday morning, the 79-year-old Weill, one of the 20th century’s most acquisitive bankers, stepped up to the mic to endorse … breaking up the banks. “What we should probably do is go split up investment banking from banking, have banks be deposit-takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” he remarked on CNBC.

Essentially, Weill was calling for the resurrection of the Glass-Steagall Act, which for 66 years separated pure deposit banking from other financial services until it was repealed in 1999, much to the Street’s glee. (The 1998 merger that built Citigroup required the Federal Reserve to temporarily waive the Act.)

“I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk,” Weill added. The best way to make money now as a bank, he elaborated, is as a pure-play company that needn’t worry about how its consumer and proprietary units potentially run afoul of new regulations. (Former Citi Chairman Richard Parsons experienced a similar revelation earlier this year. The deal’s co-architect, ex-CEO John Reed, has been remorseful for most of the 14 years since he shook hands with Weill.)

So it’s official, America: The “too big to fail” bank was both unfair and ultimately ineffective. Bailed-out 2012 Citigroup probably wouldn’t disagree, as it is in the throes of a painful deleveraging and suffering amid the widespread belief that it cannot be best of breed in any one line of business. Bank of America (BAC), which bought both Merrill Lynch and MBNA, is ruing the day it took on Countrywide’s mortgage morass. JPMorgan Chase (JPM), captained by onetime Weill protégé Jamie Dimon, is bigger than it’s ever been; accordion out its name and you’ll find Bank One, Bear Stearns, Providian, and Washington Mutual. But the place is now so unwieldy and too-big-to-manage that a trader known as the “London Whale” threatened to bring down the entire company.

Chopping these banking conglomerates into smaller, more focused, less systemically hazardous shops is a laudable goal. Thank you, Mr. Weill, for your courageous declaration. Why couldn’t you have made it a decade ago?

Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance.

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1 comment

  1. Jill Harrison

    Breaking up the big banks is important – but we also have to think about how to prevent the next generation of ‘too-large-to-fail’ controlling financial institutions. More important than trying to regulate speculative excesses is to reform the monetary system by creating an alternative currency that couldn’t be used for leveraged speculation. A sustainable market is a counter intuitive idea from our current system – but it is possible to create sustainable markets that allow people to follow their ambitions and create wealth for themselves and the community. A major shift in thinking will be needed to recognize that currency is only a catalyst for social exchange – real wealth is in the creation of healthy living systems and material comfort. Within a balanced system our desire for material comfort will not conflict so devastatingly with our shared ecosystem largely because there would be a natural bound on how much of the worlds resources a single entity could own.

    We need to recognize that money should not be allowed to command interest returns to those who hold or issue the currency. This lies at the root of the growing wealth gap, as well as our rape of the environment and political corruption. We cannot achieve a truly democratic society until we learn how to democratize our shared credit commons. This will require a change in perspective to envision how a non-inflationary economic system would look – and a recognition that this is not in conflict with individual ambitions for material gain.

    Until we create a reformed currency option which prevents the money from acting as an interest bearing instrument no amount of regulation will keep us from these speculative bubbles. A better understanding is needed of the effect of demurrage currencies (money with a small holding fee – http://www.geokey.de/literatur/doc/neo.pdf). By putting a flat tax on money storage rather than taxing money flows (such as income or consumption taxes) we would prevent the pooling of money into fewer hands & thus do away with the $21
    trillion of off shore money hoarding (http://www.cbsnews.com/8301-500395_162-57477527/report-worlds-rich-hide-at-least-$21t-offshore/?tag=contentMain%3BcontentBody).

    The Chiemgauer (https://ijccr.files.wordpress.com/2012/05/ijccrvol132009pp61-75gelleri.pdf) is a local currency with two very important features – first is the demurrage fee that prevents the money from generating interest fees for those who hold it – and the second is that the money is spent back into circulation based on the democratically selected priorities of the people using the currency.

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