Sandy Weill, the man who almost
single-handedly did more to obliterate Glass-Steagall now admits that he made a
most grievous mistake. Those watching
him on CNBC on the morning of July 25, 2012 were treated to a rare peak inside
a confessional booth as the architect of today’s Citigroup admitted his
folly. He now realizes that what he did
was wrong and needs to be reversed.
Weill now believes that banks
need to return to pure banking, whereby they accept deposits and make
loans. Brokerage firms need to return to
executing trades on behalf of customers, positioning securities to facilitate
those trades, and taking risk positions within the boundary of reasonable
leverage ratios.
It is time to begin the process
of dismantling these financial behemoths.
Citibank, Bank of America, JP Morgan, Wells Fargo, and others can
dispose of their nonbank enterprises by
simply issuing shares in those nonbank entities to existing shareholders. At the same these financial shopping centers
need to reduce or eliminate the use of derivatives that have cast a giant cloud
over their financial statements. While
the institutions adhere to the belief that their long and short derivative
exposures should be can be netted out, the stock market strongly suggests that
market participants favor focusing on gross exposures since the counterparties
are of questionable financial strength.
Forgive me father for I have sins
- as a commercial banker, I discovered a loophole in the law that allowed me to
be the first person to establish a brokerage firm as an operating subsidiary of
a bank holding company in 1979. My
application, regrettably, provided a pathway for others to follow. The loophole allowed limited brokerage
services; however, in the 1990s those powers expanded geometrically thanks to
favorable legislation and rulings.
People who were not trained as
commercial bankers became CEOs of the nation’s largest banks, and they proceeded
to transform those entities into unmanageable financial organizations or
financial supermarkets. Sandy Weill was
the poster child for that era and when he retired he left a crippled
organization as his legacy. If the
banking industry had a Hall of Shame, he would be a leading candidate to be the
first person installed. Too bad it took
him so long to get religion and see the truth!

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