Former Chair of Citigroup: Restore Glass-Steagall
This is pretty amazing:
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Volcker’s Advice
To the Editor:
Re “Volcker’s Voice, Often Heeded, Fails to Sell a Bank Strategy” (front page, Oct. 21):
As another older banker and one who has experienced both the pre- and post-Glass-Steagall world, I would agree with Paul A. Volcker (and also Mervyn King, governor of the Bank of England) that some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense.
This, in conjunction with more demanding capital requirements, would go a long way toward building a more robust financial sector.
John S. Reed
New York, Oct. 21, 2009The writer is retired chairman of Citigroup.
NYT Letters to the Editor, October 22, 2009
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Hat tip Real Time Economics
October 27th, 2009 at 5:35 pm
You almost get the feeling that there is a growing wave of support for this now…. keep fighting the good fight, BR.
October 27th, 2009 at 5:38 pm
I have to agree – seeing someone display a modicum of common sense rather than mindlessly repeating ideology is truly “amazing”.
October 27th, 2009 at 5:49 pm
I was hopeful when Volcker joined Obama’s policy team, but it appears the Summers/Geithner Axis of Weasels has marginalized him.
October 27th, 2009 at 6:33 pm
I support restoring Glass-Steagall, but as Barney Frank pointed out, Glass-Steagall would not have prevented AIG. Furthermore, it would not have protected the American consumer against our predatory banking system. Glass-Steagall will be reintroduced eventually IMO, but the real battle is to get a consumer finance protection agency. Even if we get an imperfect agency, just cracking the door open to the idea that the consumer deserves an advocate at the federal level is garlic to the vampire banking industry.
October 27th, 2009 at 6:43 pm
Prohibiting insurance companies from running hedge funds, which is a very similar principle to Glass-Steagall would’ve prevented a good chunk of AIG’s problem. AIGFP doesn’t become that big without the AAA rating behind it.
October 27th, 2009 at 6:44 pm
Then why isn’t the O-Man listening to these people? I just don’t get it. It seems like such an obvious first step to me. Regulations cannot fix our culture, however, and that is the biggest problem we face, IMO. A morally and ethically bankrupt, get-rich-quick-at-any-and-all-costs culture that was spawned in the ’80’s and has intensified to this day.
October 27th, 2009 at 6:44 pm
@ZackAttack: Great line – “Axis of Weasels”. Hadn’t heard that one yet but I love it. LOL>
October 27th, 2009 at 6:53 pm
How long before enough Sheeple start to question the legitimacy of our entire banking system and Wall Street? Maybe it will never happen, but I’ve said it way too many times, and I’ll say it again, most of our economy and markets are based on criminality and fraud today. I feel like we’re getting close to a tipping point with regards to trust and confidence in our markets and economy. Does anyone care?
Former AMD CEO Hector Ruiz allegedly shared confidential information about the chip maker with a defendant in the Galleon case.
http://online.wsj.com/article/SB125668266149911475.html?mod=djemalertNEWS
October 27th, 2009 at 6:55 pm
I support this measure. However, traditional banks still would have significant levels of moral hazard in a new, Glass-Steagall world. Further, as long as major financials (whatever their status) can wield the power of congress and the Fed whenever needed, to act on their behalf against the will of the people, the song remains the same. Ratings can still be bought and paid for under either scenario. FDIC still channels public dollars to private institutions by repaying deposits after failed banks have paid themselves the lions share of the profits over the years. The whole system needs an overhaul.
But, alas – it is a sensible, badly needed step in the right direction. It does put a thin veneer between the most egregious players and unsuspecting depositors.
Wonder what Goldman would do? Goldman and Goldman Lite?
October 27th, 2009 at 6:58 pm
And……..it’s a done deal. The farce that is the U.S. grows more farcical by the day. Like I said, can’t wait until June. I’m sure this will be re-extended and re-expanded.
http://www.calculatedriskblog.com/2009/10/home-buyer-tax-credit-to-be-extended.html
October 27th, 2009 at 7:01 pm
Barry:
“…..This is pretty amazing:….”
Not so amazing, it’s John Reed not Sandy Weill…. Huge difference…..!
Best regards,
Econolicious
October 27th, 2009 at 7:11 pm
Great stuff
but AIG , LEH , BSC , FNM , FRE didn’t blow up because of a lack of Glass- Steagall ….
their issues were not relevant in that regard
October 27th, 2009 at 7:18 pm
Oh the irony,
Fed puts a gun to B of A’s head to buy a Merrill Lynch to save the people
Congress breaks them up, to save the people.
Help
October 27th, 2009 at 7:20 pm
maybe if we would fix the rating agency ‘business model’ that would keep banks from buying so much junk. and keep that stuff out of pensions, insurance companies, 401k plans, etc. either we eliminate them altogether as they can’t do their part any more (which will lead to end of misery as every company tries to justify and do the work they were supposed to do) or we make them liable for their ‘opinions’. or outlaw the pay for opinion business model altogether
October 27th, 2009 at 9:31 pm
franklin411 Says:
October 27th, 2009 at 6:33 pm
I support restoring Glass-Steagall, but as Barney Frank pointed out, Glass-Steagall would not have prevented AIG. Furthermore, it would not have protected the American consumer against our predatory banking system. Glass-Steagall will be reintroduced eventually IMO, but the real battle is to get a consumer finance protection agency. Even if we get an imperfect agency, just cracking the door open to the idea that the consumer deserves an advocate at the federal level is garlic to the vampire banking industry.
As much as big government harms economic growth, in this instance a consumer finance protection agency is an absolute must. Banks should be required to pay for it, but it must be totally independent of the political influence to water it down at the bequest of banking gang campaign contributors.
F411 – I refer you back to BR’s original list of what needs to be done. G-S is just one of the items.
Barry Ritholtz Says:
October 19th, 2009 at 7:00 am
As noted previously, the Obama proposals so far fail to:
1) No major changes for the ratings agencies! The ratings agencies are not the only bad actors, but they are a BUT FOR – but for the rating agencies putting a triple A on junk paper, many many funds could not have purchased them, the number of mortgages securitized would have been much less, the insatiable demand on Wall Street for mortgage paper would have also been much lower.
2) Turn Derivatives into Ordinary Financial Products: Force derivatives to be traded like option/stocks, etc. (including custom one off derivatives) Trade them only on Exchanges, full disclosure of counter-parties, transparency and disclosure of open interest, trades, etc. REQUIRE RESERVES LIKE ANY OTHER INSURANCE PRODUCT.
3) If they are too big to fail, make them smaller.” Have real competition in the banking sector. Limit the size for the behemoths to 5% or even 2% of total US deposits. Break up the biggest banks (JPM, Citi, Bank of America)
4) The Federal Reserve, Despite its Role in Causing the Crisis, Gets MORE Authority: Better Solution: Have the Fed set monetary policy. They should provide advice to someone else — like the FDIC — who hasn’t shown gross incompetence.
5) Require leverage to be dialed back to its pre-2004 levels. Better Solution: 12-to-1 should be enough leverage for anyone.
6) Restore Glass Steagall: Time to (once again) separate the more speculative investment banks from the insured depository banks.
October 27th, 2009 at 9:49 pm
Mannwich Says:
October 27th, 2009 at 6:53 pm
How long before enough Sheeple start to question the legitimacy of our entire banking system and Wall Street?
you know that happened once before. after the great depression. its was one of the reasons that bankers became very boring. after all, if they were not, they lost deposits and income.
those that lived through that event couldn’t quite trust the bankers any more.
and wall street was more of curse than any thing else. people wouldn’t even bother to buy stocks.
but today we are stuck with having to do so since pensions are a thing of the past.
October 27th, 2009 at 10:54 pm
@willid3: Me-thinks we will arrive at that time again. Give it time. History may not repeat itself, but it does rhyme.
October 27th, 2009 at 11:45 pm
It makes sense that he would say that. As Chairperson he must have seen that there were diseconomies of scale as Citi continued to grow. Analysts have been saying Citi should be broken up/selling off pieces for years now. It simply wasnt able to continue to grow without acquistion and continued to fight itself for business throughout several markets. Citi became To Big To Grow a long time ago. Though it may have been the best way to ‘unlock shareholder value’ (which btw is a favorite BS wall street euphemism of mine), breaking up or selling off divisions would have sent a message that the company made a mistake and that is unacceptable to pigheaded executives. Bringing back Glass-Steagall is a regulatory cop out for another company, or in this case, Board Member, that made bad business decisions.
October 28th, 2009 at 3:58 am
[...] Former Chair of Citigroup: Restore Glass-Steagall Barry Ritholtz (hat tip reader Scott) [...]
October 28th, 2009 at 4:05 am
BR,
as contrabandista13 points out @ 19:30
“…..This is pretty amazing:….” — BR
Not so amazing, it’s John Reed not Sandy Weill…. Huge difference…..!
~~
I, too, think you’ve the wrong Citibank CEO, it would have been ‘amazing’ if Wriston had said it..
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Walter+Wriston+Free+Banking
http://www.wired.com/wired/archive/4.10/wriston.html
~~
past that, G-S is, hardly, the curative pallative for all our ills..
to garner such astonishment, one would think that Reed came out in support of H.R. 1207
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=H.R.+1207
October 28th, 2009 at 7:02 am
That so many hundreds of millions of people are depending on the notion that simply saving or worse, borrowing money, or printing money and having it multiply exponentially with a keyboard and internet hookup, over time is one that needs to be seriously scrutinized. And then expectations need to drastically decline. It’s so rarely ever going to happen. And only then for a tiny few, relatively. One might as well depend on the Powerball. And you know the odds of that victory lap.
The flimsy edifice that an economy based on the ephemeral gains of compound interest, capital gains, and dividends promises, with the FED printing money, devaluing the currency and Quants with 1000X leveraged risk trying to skirt that problem, is empty in the extreme.
It becomes clearer every day that the only path to genuine riches, or even a modestly comfortable living, and in the future even survival, are the ones of ingenuity or invention, real talent employed in the application of marketable skills, persistence, intelligence, energy, cleverness, and street smarts.
How many in this world possess these traits or if they do, how many have traded them for a career in trying to turn lead into gold on Wall Street?
Like anyone, I lust after a 10,000 share buy at the ‘87 IPO of Microsoft, or AAPL, or some other Grandest of Slams, but really, what chance do hundreds of millions of people have that this will happen to them? About 5% would be my guess. What happens then to the other 95% that are holding up that
tiny fraction?
October 28th, 2009 at 9:23 am
[...] a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure.” Even former Citi chair John Reed has called for a reinstatement of the Glass Steagall Act (see a history, [...]
October 28th, 2009 at 9:31 am
[...] Former Citi chair calls for reinstatement of Glass Steagall – Ritholtz [...]
October 28th, 2009 at 9:42 am
>>Former AMD CEO Hector Ruiz allegedly shared confidential information about the chip maker with a defendant in the Galleon case.
i met with Hector quite a few times when evaluating AMD technology for my firms data centers. Quite a slick talker and definitely one that keeps a close network which feeds each other to get ahead. He was forced out in part due to some questionable ethical moves which you didn’t read about (and never will) in the press releases.
October 28th, 2009 at 10:45 am
[...] that position when this wall was demolished by the passage of the Gramm-Leach-Bliley Act of 1999. Reed, who thus has both before and after perspectives, has come out in favor of rebuilding that barr… As another older banker and one who has experienced both the pre- and post-Glass-Steagall world, I [...]
October 31st, 2009 at 12:09 pm
[...] from here. The original is [...]
December 16th, 2009 at 10:46 am
[...] Former Chair of Citigroup: Restore Glass-Steagall (October 27th, 2009) http://www.ritholtz.com/blog/2009/10/former-chair-of-citigroup-restore-glass-steagall/ [...]