In researching the Citigroup section of Bailout Nation, I came across this improbable 1998 William Safire essay on the Citicorp-Travelers merger. Surprisingly, Safire makes a strong case against the merger, making several points (below).

It is most likely the most prescient thing he ever wrote:

No private enterprise should be allowed to think of itself as ”too big to fail.” Federal deposit insurance, protecting a bank’s depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge ”group” runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.

Let’s not be in such a big rush to knock down barriers. The Government’s biggest financial mistake of the past generation was to raise deposit insurance to $100,000 while allowing housing S.& L.’s to plunge into commercial lending. That all but removed the element of risk from foolish or corrupt loans and helped bring on the S.& L. debacle. Good fences make good banks.

Beware the slippery slope to crony capitalism. Paul Volcker, former Fed chairman, is less troubled than I am about an amalgam of financial services, provided the Fed is the supervisor. ”But there is an Anglo-Saxon tradition separating banking and commerce,” he says. ”I’d continue to draw the line between finance and business.”

Fascinating stuff . . .

>

Source:
Essay; Don’t Bank On It
WILLIAM SAFIRE
NYT: Thursday, April 16, 1998

http://www.nytimes.com/1998/04/16/opinion/essay-don-t-bank-on-it.html

Category: Bailouts, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

59 Responses to “Safire, 1998: Don’t Bank On It”

  1. revising the call for the top to tomorrow. there’s another surge left in her.

  2. Wow … great find, Barry.

    It’s amazing what even a small amount of basic research can turn up.

    But did he predict a Red Sox world series win in 2004?

  3. Bob_in_MA says:

    Wow, that must be the most insightful thing William Safire ever wrote…

  4. leftback says:

    So true, this housing bubble has been deja vu all over again – this is just the S&L crisis on steroids, and at some point the TARP/TALF etc will probably end up morphing into RTC 2.

    We are watching the XLF enter a zone of higher resistance. XLF 10 would be very strong resistance, and we assume that would cap the limits of the present rally, at maybe SPX 875 or so. SPX 825 continues to be sticky for now, but the present climate of intervention makes us unwilling to get on the short side to any substantial degree.

  5. DL says:

    leftback (and his voluminous staff) @ 1:07

    “…but the present climate of intervention makes us unwilling to get on the short side to any substantial degree”.

    Yeah, aren’t they supposed to be doing something with “mark to market” next week?

  6. Mannwich says:

    @DL: I was trying to think about what next week’s weekly bailout annoucement would be. I think you nailed it. Will probably be M-t0-M. And who’s going to be on 60 Minutes this weekend? Geithner?

  7. batmando says:

    lb sez:
    “XLF 10 would be very strong resistance, and we assume that would cap the limits of the present rally, at maybe SPX 875 or so. SPX 825 continues to be sticky for now”

    What say you, AT?

  8. wally says:

    Those are very insightful, and they also point out the utter indifference of officials and executives who charged ahead in spite of the fact that a few minutes of thought would have led them to the same conclusions.
    They simply did not care about the welfare of their country.

  9. leftback says:

    All technicals apart, those downgrades of WFC and BRK debt may bring the rally to a premature close….
    LB is not seeing the usual moves in Tsys and the $ as yet, however.

  10. leftback says:

    Bounce off yesterday’s close. Textbook. I am staying long here.

  11. Transor Z says:

    It was topical at the time, especially given Safire’s Washington connections. The House Banking Committee held a hearing on April 29, 1998 to discuss pending H.R. 10 the spate of recent bank mergers and whether this was increasing the number of TBTF institutions. The Citicorp-Travelers merger was a hot topic.

    http://commdocs.house.gov/committees/bank/hba48312.000/hba48312_0.HTM

    Had to laugh at this statement by Congressman Luis Gutierrez (D-IL):

    Mr. GUTIERREZ. Mr. Chairman, thank you very much.

    I think this is an extremely important hearing. And I would just like to say I also would like to raise the concern and just like to share, in 60 seconds or less, it was 1990, early 1991, I just paid for my Banc One credit card, my $35 yearly fee on my Banc One credit card. I went to go use the same Banc One credit card and they told me I couldn’t use it anymore.

    And I said, ”God, I always pay my bill on time every month,” and then I subsequently got a letter from Banc One saying, ”You know, Mr. Gutierrez, for some reason, you and your wife, we are not going to extend your credit anymore. You can obviously continue to pay off the debt you owe us, you can continue to have the credit card, and by the way, thanks for the $35 on your annual renewal fee,” which happened the same month that they cut me off of all credit.

    And my only revenge, Mr. Chairman, is they had an 800 number which I put on automatic redial on my phone. I figured if they were going to cause me all this grief, I might as well cost them some expense on their 800 number. I think that is a bad way of having to go about getting someone’s attention, but I figured since Banc One is probably here today, I just wanted to let them know they may have cut me off with credit, but I think it cost them a little bit of money, since it was several days before I turned it off. I am being quite serious.

    But, Mr. Chairman, the point is, as the institutions get bigger, and if people with good credit ratings cannot get an answer from an institution and have to go through the frustration level, I just think we—you know, let’s figure out how we do this so that as people go around getting credit and have access to credit, that it is available and that big institutions don’t simply say, ”We are not going to give you a reason, we are not going to talk to you, we are not going to tell you why, and you are not going to have any more credit, even when you pay your bills,” Mr. Chairman. So if somebody who pays their bills can get this kind of treatment, I start wondering what is going to happen with the rest of America.

    Thank you, Mr. Chairman.

  12. Mannwich says:

    Losing steam. Need another bailout announcement. Bueller? Bueller?

  13. karen says:

    Tranzor, thanks for posting that… and how things have changed, now credit card companies pay the card holder to use the card…

  14. leftback says:

    The NAZ needs to hold 1500. It’s been weak all day.
    Lots of weak Q1 earnings out there in NAZZland.

    Jeff, where’s my bailout?

  15. tranchefoot says:

    LB,

    I think it’s a bear trap. I’m guessing 796 or so will hold. Just guessing.

  16. Mannwich says:

    I got you covered, lb. Don’t worry about it. Trade away.

  17. Transor Z says:

    @karen:
    His story reminded me of the strong-arm stuff some large banks did during the good old bubble years with small business LOCs at renewal time. Also reminded me of when BoA took over my old FleetBank account. They sent me a new BoA ATM card with an 800 number to activate. The activation took a few seconds and at the end of the recorded message was this (or something very close): “Press 2 if you would like information about Bank of America’s identity theft protection program.” I pressed 2.

    60 days later there’s a $90 charge on my statement. “What’s this?” “That’s for the ID theft protection program you signed up for.”

    In case you forgot, Karen, the mega-bank mergers showered the American consumer with the benefits of economies of scale, on-line banking technology (aka “image unavailable at this time”), and innovative and competitively priced lending products — without all those sneaky hidden fees SOME banks use. :)

  18. Bruce N Tennessee says:

    They better start buying those 10 year bonds today….

    I wonder what the Chinese are doing this afternoon…

  19. bogwad_seigneur (the smelly one) says:

    @leftback
    it takes some degree of faith to stay all – and all long at that – while looking at this midday situation……either that or the largest genitals on wall street, which I don’t claim to possess. Is this the lunchtime dip or something more ominous?

    Call me insane (do please, I could use the reality check) but I loaded up with AIG at 1.16 just for a day long (or perhaps two) excursion into gut wrenching stress. Ah screw it, a few pennies will keep me [relatively] sane and still believing. A nickel will have me dancing naked on my carport roof.

    It all comes down to this, when in doubt, drink heavily, trade carefully, read BP, drink more, and buy gold out of a sense of utter desperation.

    Has it all come down to this?
    Yes.
    I think I was happier at 6550. There appeared little doubt at that level. I’d gotten used to bottom feeding, enjoying volatility, and the knowledge that it would all turn to shit by the end of the session.

    Now? I have no clue where the hell we are.

  20. Mannwich says:

    I really hope this isn’t it for this latest leg up. Was waiting for next week (April) to get my SRS on. Still have some but wanted more. Hope I didn’t miss it. I’m sure I’ll get another shot if I did! ;-)

  21. call me ahab says:

    @ leftback-

    your a TA guy right? Do you ever use stochastics? Was thinking about SH or SDS when SPX was up about 2% this morning but was not sure so did not pull the trigger- but it looks like it would have been a good trade NOW that the market is negative.

    anyone else can chime in as well.

  22. call me ahab says:

    Failed to say that when I was looking at the stochastic chart- SPX looked way overbought- good indicator to jump in? would have worked this morning but- what about in general. just trying to learn from any of you TA folks.

    Thanks for any advice.

  23. leftback says:

    Thought about getting short at SPX 825. Didn’t, even though the XLF felt heavy.
    Now we are looking at SPX 785 and 760 support levels. We’ll see.

  24. tranchefoot says:

    Oh well, I guess badly. :)

  25. David G says:

    By reprinting this excerpt you obviously hate america.

  26. CONGRESS PASSES WIDE-RANGING BILL EASING BANK LAWS
    STEPHEN LABATON
    Friday, November 5, 1999
    http://www.nytimes.com/1999/11/05/business/congress-passes-wide-ranging-bill-easing-bank-laws.html

  27. tranchefoot says:

    Didn’t Phil Gramm lead the push to repeal Glass-Steagall? Sigh…

  28. Mannwich says:

    @tranchefoot: I may be wrong, but I believe that was Gramm-Leach-Bliley? (sp?)

  29. leftback says:

    We watch the EUR:JPY closely as an indicator of future stock movements. This seems solid for now, so we would have to conclude that the rally may continue tomorrow, perhaps on “less bad news” in the initial claims numbers. Nobody would be surprised by the Q4 GDP number at this point.

  30. Mannwich says:

    @leftback: I think this rally still has some legs in it at least into the weekend. I hope so anyway. Watching from the sidelines with some cash to put to work in SRS in early April, but want it to dip below $50 again first.

  31. leftback says:

    @Mannwich. Agreed.

    More importantly, it was a great morning on Bloomberg. It was All Betty All The Time. Here’s Betty standing in the lobby, here’s Betty sounding intellectual about the markets, here’s Betty sharing a joke with someone, here’s Betty sitting on a stool in a skirt, I mean what more could a trader ask for? I mean, who would ever want to watch CNBC with Kernen giving bankers bl*w j*bs when they could spend a morning with Betty…?

  32. franklin411 says:

    Well at least one of my Congress(women) voted against repealing Glass-Steagall: Sen. Barbara Boxer.

  33. Transor Z says:

    Barry: What a gem!

    Here you go, from the CBO projected impact report submitted to the Committee a year before the 98 hearings in 7/97: http://www.cbo.gov/ftpdocs/0xx/doc41/hr10-cs.pdf

    H.R. 10 also would allow banks to expand into relatively unfamiliar activities, thus possibly increasing the risk of bank failures. The bill would allow two approaches that would mix banking and commerce. Well-capitalized and healthy bank holding companies could own commercial firms as long as the aggregate commercial revenues do not exceed 15 percent of the holding company’s gross domestic revenues. It also would allow a commercial firm to control a bank holding company with one small bank (less than $500 million in assets). Similarly, revenues from the bank could not exceed 15 percent of the consolidated gross domestic revenues of the commercial firm.

    But, permitting insured banks to diversify into product areas where they have little experience, or allowing commercial firms to own banks, raises questions about the adequacy of the regulators’ ability to protect the insured entities and the insurance funds. Several federal banking regulators have expressed uncertainty about their ability to maintain adequate safeguards between the transactions of the insured institutions and their commercial affiliates and subsidiaries. A major concern would be preventing nonbanking losses in affiliates from draining the resources of the insured banks. To maintain safety and soundness in the banking system, H.R. 10 would specifically prohibit a bank from lending to a
    commercial affiliate and would impose a number of other restrictions. Nonetheless, experience with mixing commerce and banking in the United States has been limited.

    Ultimately, strong supervision and monitoring by regulators, which history has demonstrated is critical in limiting the exposure of the taxpayers during times of financial stress, would be essential to avoid additional losses to the deposit insurance fund. If losses to the deposit insurance fund were to increase as a result of enacting H.R. 10, the BIF would increase premiums that banks pay for deposit insurance. Similarly, if losses were to decrease, banks might pay smaller premiums. As a result, the net budgetary impact is likely to be negligible over time in either case. [hee hee]

  34. Mannwich says:

    @leftback: Betty’s the best. I’m now a regular Bloomie watcher (well, I have it on in the background). I should have switched sooner. I honestly feel cleansed without CNBC circus show on every day.

  35. Foghorn Longhorn says:

    mannwich
    As your tasty little morsel this morning showed,
    they only know what they know,
    there is no there, there.

  36. Mannwich says:

    Wow, crazy day today. Looks like this fake rally has more oomph to it. Good. Gives me plenty of time to grab some SRS at a nice price next week and possibly pare back some long winners.

    Agreed, Foghorn.

  37. leftback says:

    We think tomorrow will be a continuation of the rally, so we loaded up on some swing trades just now.
    A successful test of SPX 790. Range between SPX 790-825 remains in place.
    Wonder when AT will step back into the fray?

  38. Moss says:

    Would be interesting to see what legislators voted for the Gramm-Leach-Bliley and who is still in office.
    Would be a great political add for any challenger in 2010.

  39. dead hobo says:

    I bailed and went to 100% cash.

    I’m still working on recovering from my toe in the water experience and I made a good dent. I’ll finish the job on the next cycle. I decided not to put any new cash in at the bottom until I recovered from my wet toe experience.

    Today should have been somewhere between a blow out and and a really nice day. Good home sales and good durable sales orders should have been the equivalent of chemical rockets and a match. Instead, moron shorts (I assume) decided to chase away the timid buyers at the apex. The buyers are not coming back in large numbers. The moron shorts are like flies attracted shit you can’t scrape off your shoe. That means this is a terminal rally. It might end today or it might end next week. A worst, I shaved a couple of percent off the top. At best, I’m ready for the next nose dive.

    The moron shorts will eventually sense shit on in the ground and swarm the area. This wills chase away all but the end of quarter window dressers. No buyer with real money would think of putting in personal cash if idiot shorts are ready to pound the markets. There aren’t many “buy at the top dummies” any more.

    The indexes will have a race to the bottom very soon until the next rally.

    It’s too late for any mark to market revision to be more than a one day story until 6/30 at best. There’s no other good news on the horizon that could possibly overcome the “go away in May” tradition.

  40. AndrewShaw says:

    I don’t know what this “guideposting” guy is about but I traded with him and his blog today, Excessively shorted at SP825. Set up the exit triggers and decided to sell my Miners, Cover my short the Double Long SSO, sell FAZ and SRS at SP805(Ameritrade “TradeTriggers”) and go long(wee bit early with Long SSO, FAS, URE), and now have absurd longs for the overnight. Great day after about 4 in a row that were quite painful. Gotta swing for the fences once in a while. Fun.

    Guidepost Blog: What’s you favorite charity?

  41. tyaresun says:

    Two party democracy: A system in which the two parties take turns to f**k you.

  42. dead hobo says:

    Then, as mentioned on another thread, I consoled myself with stiff drink.

  43. leftback says:

    @AndrewShaw Says: “have absurd longs for the overnight”

    Same here. We like DRYS as our high beta trading stock.
    Sounds like you had a nice day. Shorting at 825 was a great play today.
    Well done. Got to take ‘em where you can.

  44. dead hobo says:

    I’m just curious. If no or very little new cash enters the market and shorts salivate at the prospect of fooling someone, isn’t that just a giant circle jerk where everyone wears a blindfold?

  45. tranchefoot says:

    @AndrewShaw

    Do you have a link for the guideposting blog. Google is not my friend, today. TIA.

  46. dead hobo says:

    Last tag: Oil’s got a 20% hit coming. Fair warning.

  47. leftback says:

    “Oil’s got a 20% hit coming”

    dh: What are you smoking? Back to the low $40s?
    With a recovery in global trade and a falling $?

    Time for another wager my friend…

  48. dead hobo says:

    leftback Said:
    March 25th, 2009 at 5:48 pm

    “Oil’s got a 20% hit coming”

    dh: What are you smoking? Back to the low $40s?

    reply:
    —————————-
    Yup. Not meaning to be rude but, Sucker. You’re still caught up in the fantasy. I’ve called big oil moves correctly about 100% of the time for the past year and this one is no different … although I will concede in advance +/- a couple of percent.

  49. I’ll fade that Texas Tea w/ dh

    lb,

    “recovery” in global trade? where?

    that, and the paperback is fixin’ to catch a bid.. Au y Ag need to be sold off some more..

  50. tranchefoot:

    try: http://tradepostings.blogspot.com/

    it’s what came up thru his name link

  51. tranchefoot says:

    Thanks, MEH.

  52. ben22 says:

    Looking out a little further than next week I think the next clue is to listen very carefully to hints BB is going to start to drop about the Fed’s desire for inflation, and what the target will be. That seems to be getting lost in the noise of what will happen to m2m, AIG bonus, etc. This is the next step.

    That seems more important, at least for a guy like me, that is trying to make investments, not mainly trades.

    @ dead hobo,

    I actually agree with your short term take on oil, I think that also could happen but I think the 100% correct calls on oil are going to be harder to come by. I’m no oil pro and even I made good money last year getting short when oil “had to go to 200″

    To others more familiar than I am with them, what are people thinking about this idea of the dutch auction for these toxic assets. I keep hearing that lots of people are suggesting this type of auction.

  53. Foghorn Longhorn says:

    hoffer
    How do you do the name/link thingy?
    Do I have to subscribe?
    Thanks

  54. foghorn,

    when one ‘logs in’, WP asks for a URL:–or, at least, it did for me..

  55. Foghorn Longhorn says:

    Thanks
    Need to update my site, recently right-sized my herd.

    Jimminy Crickets
    Mickey Mouse is a busy little beaver.

  56. james hogan says:

    It just goes to show you that the right isn’t always wrong. There are some areas where the right and the left overlap, one of them being an ingrained distrust of large concentrations of power.

    In fact, the phrase, (the absolutely correct phrase, IMO) “If something’s too big to fail, then make it smaller” came from George Shultz, a member of Ronald Reagan’s cabinet.

    We need more of this, and we need it now.

  57. dead hobo says:

    ben22 Said:
    March 25th, 2009 at 6:14 pm

    I actually agree with your short term take on oil, I think that also could happen but I think the 100% correct calls on oil are going to be harder to come by. I’m no oil pro and even I made good money last year getting short when oil “had to go to 200″

    reply:
    ——————–
    Once speculative money no longer floods the oil market and supply isn’t constrained by providers, my skills at reading the future will diminish. Since money needs a place to go and since people follow patterns, speculative flows into oil will continue for a long time. The only thing preventing it from going back to absurd levels at this time is the unavailability of junk credit. Perhaps the CFTC will be given powers to limit speculative induced commodity inflation.