Quote of the Day: Citibank on Glass Steagel

We’re going way back for this one:

“With an aggressive legal maneuver, Citicorp is taking another step in the battle to unshackle the banking industry from the restraints of the Glass-Steagall Act of 1933.  The strategy, being watched closely by the entire banking industry, has been used for years to push the deregulation of the financial industry: Explore every loophole in existing law to do what you want to do. As they have in the past, the House and Senate are watching, rather than legislating, as the industry and its regulators make changes that will reshape the financial landscape…

In a securities deal announced last week, Citicorp, the bank holding company, said it was issuing $47 million of mortgage-backed securities through its Citibank Delaware Inc. subsidiary.  The move was aimed at avoiding – some say circumventing – a Federal court order that would have blocked the New York-based Citibank from issuing securities backed by residential mortgages originated by the bank.

-New York Times, March 23, 1989

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Would someone please tell me why the Taxpayers are on the hook to bailout these cretins?

>

Hat tip: Bill King

Source:
Talking Deals; Citicorp Strategy On Glass-Steagall
JONATHAN FUERBRINGER
NYT, March 23, 1989
http://query.nytimes.com/gst/fullpage.html?res=950DE2D81F39F930A15750C0A96F948260

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Jul 8

    IF I recall correctly Messr. Rubin took the job at C shortly after this was repealed…

    THink he wasn’t aware of what windfall awaited him???

    Ciao
    MS

  2. Adam commented on Jul 8

    “Would someone please tell me why the Taxpayers are on the hook to bailout these cretins?”

    By “Taxpayers”, I assume you mean those who pay taxes but do not benefit directly from such bailouts?

    1. The “Taxpayers” are not sophisticated enough to know when and how they are being fleeced. They would prefer to read US Weekly and watch Who Wants to Marry a Midget?

    2. Those in power strive to keep those “Taxpayers” distracted and uneducated.

    It always has been this way, and it always will be this way.

  3. shrek commented on Jul 8

    Seems to me glass steagall was designed some moron bankers dont go blow themselves up. Of course time and hubris leads to overconfidence.

    Failures arent problems accept in the banking industry.

  4. JB commented on Jul 8

    I was under the impression that Glass-Steagall was widely seen as overregulation, and that the majority of countries in the world don’t separate Investment and Commercial banks….

  5. Will commented on Jul 8

    Having to read this report from 1989 just makes my stomach turn. And having to listen about Bernanke’s comments this morning about, basically, socializing all the losses, makes me want to throw-up.

  6. greg commented on Jul 8

    I wonder why the GOP hasn’t picked up on this since Glass-Steagall was repealed on Bill’s watch. De-regulation seems to lead to re-regulation with different rules.

  7. Ed Miller commented on Jul 8

    Who owns the Fed? There’s your answer.

    (P.S. It’s the wealthy bankers.)

  8. Vermont Trader commented on Jul 8

    because our politicians are whores and most voters are too stupid and lazy to give a damn.

  9. Don commented on Jul 8

    Rubin, Summers and Greenspan: The Committee to Save The World.

    Financial Services companies spent $200 million on lobbying activities in 1998. Glass Steagall Act repealed November 12, 1999. Rubin to Citi just days later.

    I wonder if there’s a connection?

    http://www.time.com/time/covers/0,16641,19-02-1999,00.html

    For what it’s worth, the act that repealed Glass Steagall is named after Phil Gramm, an economic advisor to McCain

  10. Douglas Watts commented on Jul 8

    If it weren’t for suffocating, centralized, c. 1975 East Germany-like over-regulation, Enron would now be providing low-cost, free-market electricity to California citizens.

    As with most things, the blame can be placed on Sarbannes-Oxley.

    And polar bears.

  11. Portland Refugee commented on Jul 8

    I’m cautiously optimistic, we’ll have a predominantly well informed electorate this cycle.

    Maybe scrutiny / truth will provide greatly needed anti-septic….

    than again….

  12. SINGER commented on Jul 8

    The GOV dropped the ball on Graham Leach Blilley

  13. donna commented on Jul 8

    It’s ok, the taxpayers don’t have any money, either.

    Ought to just declare bankruptcy for the whole frickin’ country already.

  14. Mother Teresa commented on Jul 8

    The taxpayers own the Fed. The Fed was created by lawmakers and its roles and charter are controlled by elected representatives of the sovereign – that being us. This private, secret blather is ridiculous. Participating banks are shareholders in the Fed. That’s it. These generally racist undertones to secret financial institutions or a scam perpetrated by a secret ruling elite is so boorish. It’s all out in the open. It’s simply incompetence that we put up with because we become fat, dumb and lazy.

    And, the GOP hasn’t picked up on GS being repealed on the Dems watch because Phil Gramm, John McCain’s trusted economic advisor, ramrodded the overturning in a bill written by the banking sector in a Republican controlled Congress. The dirty little secret is that it was the Republicans who sponsored overturning it and the Dems that turned the other way and signed it. They are all the same. Anyone who is a party hack is delusionally brainwashed that the two party system actually offers real choice. Choice emerges when society becomes outraged and votes in a change agent. Leaders don’t wear a party pin. They lead through genuine ability.

    Why are we bailing them out? Because you and I and every other person on this board allowed elitists to tell us what was best for the economy and our lives. And, now in hindsight, we wake up to what people have known since the beginning of time – that these clowns know nothing more than the average joe as it pertains to what is best for this country or each of us. Didn’t we fight a war to provide sovereignty to the people? To rid ourselves history’s repeated belief in a ruling class? More importantly, that a ruling class actually will look out for the interests of the sovereign?

    These continuing disclosures are all very, very bullish. Not for assets but for the future.

    Regards,

    Mother

  15. new commented on Jul 8

    I have been against the evisceration of Glass-Steagal since Congress began talking about it. The push was the growing size differential between Japan’s banks and ours.
    Well, almost immediately after the passing of the Banking Act of 1989 Japan entered a 14 year bank disaster. So much for size.
    The reasons for G-L 1933 have been reproven: consolidation of financial services under one roof led to the current disaster for several reasons: bigger is not better, commercial banks don’t know about investments, insurance, etc, due diligence on purchase/sale–formerly a step by step process–from one independent to the next and so on–has been eliminated.
    Some of us anticipated this. No one knows what goes on within Citi, et. al. We will ultimately expose the chinese bookkeeping. Self-regulation? A joke. Everybody. Everybody takes what he can get away with when the blind eye is turned and the blind eyes persuade that the sky will always be blue.

  16. Darkness commented on Jul 8

    >I wonder why the GOP hasn’t picked up on this since Glass-Steagall was repealed on Bill’s watch. De-regulation seems to lead to re-regulation with different rules.

    Bill, the picture-perfect Moderate, had a Contract on America obsessed Republican legislature sending him things to sign, and if you cast your mind back, he was perfectly willing to grin and take the credit for any issue, no matter what side it was from, just so the glow of accomplishment shined on him and people loved him. At the time, I thought it was funny, since it made the republican’s grit their teeth in annoyance, but what we are suffering now is a result of that pandering behavior.

  17. Ritchie commented on Jul 8

    Barry: “Would someone please tell me why the Taxpayers are on the hook to bailout these cretins?”

    Less than 50% of voting taxpayers elected their guy to office in 2000 so the miracle of capitalism could advance into the bright future for all.

  18. winslow commented on Jul 8

    Deregulation only works if participants are ethical. This is why government control is necessary. We need to reshape our entire social structure.

  19. DaveM commented on Jul 8

    The Fed, out of interest rate bullets, now stakes claim to our national assets in order to “manage liquidity” but you cannot fake economic scarcity with printed money so as to find even weaker hands for these bad bonds. If outright socialism was the only thing Chrmn. Bernake learned in all his studies of the 1930’s, then
    the Republican party will go the way of the Whigs (as in 1856) very soon. How many times will we overtly monetize the failure of bankers before we let them fail and accept the larger correction?

  20. calling you on it commented on Jul 8

    You don’t know what you are talking about. What does this old MBS deal have to do with the current issues? The NY Times author mischaracterized the issue then, and Citi has been doing securitizations of mortgages since the 70s. Securitization, as a whole, is not the root of all evil, and it surely is not the reason any taxpayer is going to have to cough up some bailout.

    The deal in question, was actually a pool of pretty stand-up collateral (prosup is on SEC.gov – go check it out) compared to the fraud-ridden stuff of today. 15-year fixed-rate mortgages, average LTV of just 70%, 78% were for purchase, and the deal paid off in 1996. So, what does this have to do with the price in china – really?

  21. Steve Bowles commented on Jul 8

    I dont see the problem here – Citibank SHOULD be able to package up and securitise its mortgage book.

    Securitisation = Good
    CDO structure = Bad

    Dont confuse the two

  22. bad home cook commented on Jul 8

    Damn you’re good. Somebody needs to dredge this stuff up, because our Fourth Estate sure ain’t doing it (it’s bought and paid for, after all). You’re probably fielding calls for what we used to call a “Follow,” from the WSJ, the NYT and others as I write this. With any luck, you can take credit for launching a whole brou-ha-ha with this one blog post. God bless the internets.
    And I agree with Mother.

  23. MarkTX commented on Jul 8

    actually the quote of the day
    should go to the CNBS person who just said we are now out of the bear market.

    End of day quick pump of all the indexes and voila, no more bear market….

  24. stormrunner commented on Jul 8

    >>I dont see the problem here – Citibank SHOULD be able to package up and securitise its mortgage book.

    >>Securitisation = Good
    CDO structure = Bad

    I think the problem, could be summed up as slippery slope, foot in the door, testing the waters for a Minske Credit Cycle explosion the likes of which have not been seen for eighty years. Now Rubin and Gramm will try to weasel their way back into power positions to make sure the open access to looting does not get encumbered in any meaningful way. No matter which party prevails this baggage is attached.

  25. Mike in NoLA commented on Jul 8

    Another illustration of the old saw: “The burned hand teaches best.” Or is it: “Those who do not study history are condemned to repeat it.”

    Trouble is, it’s not only them as will get their hands burned or as will have to repeat history. This could be as a bad as the big one, but neither of the losers running for the presidency has the intelligence or balls to fix what’s wrong when the crash really hits.

  26. Mark commented on Jul 8

    because taxpayers are suckers. they are either too ignorant to understand or they are too stuck up to act.

  27. kent commented on Jul 8

    Back in my salad days as an armchair investor, I watched the Congress rip all the wires outta G-S. I was thinking this can’t be a good idea, but didn’t know why.

    As the drunks might say, I’m having a moment of clarity. The Boys finally engineered a product that looked all the world like something for nothing: return without risk.

    And somehow, they sold this tripe to the Congress. (Color me shocked, SHOCKED I tell ya). I’ve always understood its far easier to sell nonsense to the Pentagon than Congress. I stand corrected.

    We got here by drinking the Kool-Aid, Barry. We believed mortgages were probably safe — and when originated by adults, they are. What could possibly go wrong with spending more than we make for a generation? I think that is the real crux of the problem. We pulled the rug over our own eyes because we want to live like the Beautiful People.

    So we did.

    And now the unsustainable has ceased sustaining. Alas, I’m not a good judge of the timing of such things. I figured we could whistle past the graveyard at least until the Lohan Administration.

    k

  28. Bystander commented on Jul 9

    Barry, this is why you are on the list of economic disaster blogs along with Mish and the tinfoil hat crowd. Because you recognize the disaster and the political failure that allowed it to happen. Keep up the good work.

  29. pft commented on Jul 9

    “Would someone please tell me why the Taxpayers are on the hook to bailout these cretins”

    Because they own us?. Remember, Rothschild told us that giving them control of our money meant giving them control over our government. We were sold out in 1913 when we allowed the bankers to write the legislation for the Federal Reserve Act.

    As for Glass Steagall, the reason for the separation of banking from other financial services was that the ownership of the privately owned Fed was caught with their hands in the cookie jar. The Fed was responsible for regulating banking, having no control over other Financial institutions which were owned by the same people who owned the Fed. But the money was being made on the Stock Market, and the banks were allowed to finance the bubble. Despite the clear danger, the Fed stood aside, since it’s shareholders were making a pile. Then they got together, decided it was time to burst the bubble before someone got hurt (like them), let their buddies know about it, and then pulled the plug. Over 50% of the banks in the country failed. The Fed owners and their investment firms never lost a dime.

    Now don’t confuse the 12 Federal Reserve Banks with the commercial banks in the Federal Reserve System. The largest Commercial Banks are owned by the initial and largest FRB shareholders. Today the Federal Reserve Banks do not make much money, their mission is to allow the commercial banks in the system to make a pile. Repeal of the Glass Steagall meant the Financial Service Industry as a whole benefitted from the Feds decisions, and commercial banks owned by Financial holding companies would serve the interests of the proprietary trading desks of these investment and insurance firms within the holding company.

    The Fed and Paulson will ask Congress this week for regulatory authority for the whole ball of wax. They will recommend changing the banking charter to include all financial institutions.

    And did you know, the IMF is going to audit the Fed. The Fed has never been subjected to a full audit of their operations by the GAO. An earlier assertion that the tax payers and congress have any the Fed is beyond comprehension. Yet the IMF will get to audit them.

    http://www.gata.org/node/6399/print

    “Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF’s board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.

    As part of the assessment, the Fed, the Securities and Exchange Commission, the major investment banks, mortgage banks, and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests — worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar.

    Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members — but never the United States — have already endured this painful procedure.

    For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush’s last year in office, but it may not be completed until he has left the White House.”

    Remember the toxic waste the Fed took onto it’s books to bail out it’s shareholders financial institutions (not banks)? The Fed is technically insolvent.

    The purpose of the audit is to expose this insolvency and justify a world currency as the reserve currency to replace the USD. This means the US will no longer be able to service it’s debt.

    The US will then become just another debt ridden 3rd world country who will end up like Zimbabwe if they oppose the global elite demands to hand over it’s assets to pay off the debt.

    Once the US is finished as a superpower and our military and finacial assets seized by the UN to pay off our debt, the world can be globalized.

  30. Gregory Dursteler commented on Jul 9

    You should probably use fewer drugs pft.

    It’s disheartening to see our political and regulatory institutions aiding and abetting greed at the expense of the general populace.

    I’m interested to see the results of the IMF audit. I’m always a fan of government transparency.

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