Do you believe the Glass-Steagall Act ought to be reinstated?
- Yes (83%, 82 Votes)
- No (17%, 17 Votes)
Total Voters: 99
If a Great White insisted he only ate seafood, would you throw your children in the water with him? Probably not, which is why we are scratching our heads at Sanford I. Weill’s recent statement on CNBC that the basic tenets of the Depression-era Glass-Steagall Act ought to be reinstituted.
Glass-Steagall was a key piece of financial reform in the wake of the stock market crash that precipitated the Great Depression. Prior to 1933, banks holding money from depositors (their fundamental role in our society) were allowed to use those deposits to speculate in financial markets for their own profit. In other words, financial institutions were getting rich by gambling with Joe Mainstreet’s paycheck.
After the U.S. economy fell to pieces beginning in 1929, citizens and regulators alike thought it prudent to limit the ability of banks to gamble with customer deposits. Thus Glass-Steagall was born. It functioned as the financial version of the separation of church and state for the following 30 to 40 years, depending on which economist you ask. After a prolonged period of sustained economic growth in the U.S., the hallowed separation of deposits from bets began to erode, all in the name of bigger, better and faster wealth creation. Of course, that wealth never seemed to make its way back to the depositors as interest paid on deposits have declined in an almost straight line since 1980, the turning point in this epic banking (de)regulation drama.
In the aftermath of the 2008 financial crisis, a renewed interest in Glass-Steagall has bloomed. Social, political and economic theorists have been singing the praises of the now antiquated act ever since Citigroup was forced to accept a $45 billion dollar taxpayer-funded bailout. But we have yet to hear the words “Glass-Steagall” uttered in deference by any big banker — that is, until now.
Sanford I. Weill, the former CEO of Citigroup and self-styled “Glass-Steagall Shatterer,” has gone on record stating that investment banks and retail banks ought to be split up once again, Glass-Steagall style. While not going so far as to admit wrongdoing over the span of his entire career, Weill has stated that the Glass-Steagall model may not have been appropriate for the banking industry prior to 2008, but that it is necessary now.
first tuesday take
Utterly confounding, isn’t it? We can’t figure out why the number one exploiter of banking deregulation would come out now and advocate Depression-era financial reform. Is it because he’s already satiated his seemingly unquenchable appetite for profiting on the backs of his depositors? Or is it because he’s retired now, and finally fit to unburden himself of heretofore-inconvenient truths?
We’re not sure, but one thing is certain — he’s right. Separating investment banks from retail banks, along with paring back lenders’ ability to originate and distribute mortgage loans on the mortgage-backed bond (MBB) market, would both go a long way in stabilizing the real estate market and the greater economy.
Related article: Barclays bares it all
It is all about balancing risk. Lenders must assume a greater share of the risk in proportion to the benefits they receive. The most effective way of correcting the abhorrent risk asymmetries between lenders and borrowers is to require lenders to have more skin in the game relative to their depositors. This will lead to less speculation and mitigate the possibility of more taxpayer-funded bailouts.
Of course, it will also enervate lender profit grabbing — the primary reason why Glass-Steagall was stunted in the first place and why the Volcker Rule now languishes under the strong arm of big bank lobbyists. Regardless of why Weill has come out with this shocking statement, we are happy to hear somebody on Wall Street speak some sense. Perhaps this is the dawning of a new age in the financial industry. Please, humor our optimism.
re: “Weill Calls for Splitting Up Big Banks” from the New York Times
Millions of Americans finally have woken up to the fact that the nation is truly ruled by a small elite group of unscrupulous banking families that own the FED and that the politicians are puppets on strings being pulled by the banking tycoons.
The good news is that federal prosecutors are after many of them now, and even more of them are being sued by local, state, and federal authorities—all triggered by the LIBOR scandal.
Someday—sooner than later hopefully—-we’ll be free of the blood-sucking bankster elite that is bankrupting America.
But how much did Weill make, back when he was saddled with a job? Well, according to a Forbes report in 2001, he pulled in $785 million over five years, cashing in $196 million of stock options in 2000 alone.
Then, in October of 2003, in violation of its own policy against buying its own shares from its own employees, Citi let Weill sell a quarter of his Citi shares back to the company for $264 million. This was when Weill was stepping down, clearing the way for Prince to come in and take the blame for destroying the company.
The deal then was 5.6 million shares at $47.14 a share. If 5.6 million shares was just a quarter of what Weill owned, that means he must have still been sitting on 16.8 million shares even after that 2003 stock sale.
So: if he had sold all his stock at that very moment in 2003, he would have made about $792 million. He must have felt pretty stoked about that pile of shares when he walked out the door that year.
Fast forward to this summer. On the day he gave that interview to Sorkin on Squawk Box, Citigroup shares traded at $25.79 at the close, which doesn’t sound too bad, until you figure in the fact that the company did a reverse stock split last May. Through that move, Citi turned every ten shares into a single share.
So to put this another way, Weill’s shares are actually worth ten times less now. If the stock traded at $25.79 on the day Weill blabbed to Sorkin, they were actually worth $2.58 to Weill.
To sum up: Weill was sitting on $792 million worth of shares when he left in in 2003. But fast forward a few years, and Weill’s 16.8 million shares, if he hasn’t gotten rid of them already, are now worth a total of $43,344,000 – basically nothing at all. Hell, there are black basketball players who have more than that!
Anyway, one has to wonder if Weill’s nagging poverty had anything to do with his change of heart. A few years ago, when he was still blasting Reed, he probably thought Citi would bounce back. Citi was trading between $3-$4 back then (pre-split). How could things get any worse? He couldn’t have imagined that two and a half years later, the stock would actually be lower. Could the shock of that ugly truth have played a role in his “good thing” idea?
It was strange that Squawk Box didn’t wonder about this question. As my friend put it: “I was floored that Sorkin and the other talking heads didn’t ask Weill about his Citi shares. This is the money business, and they didn’t ask the guy about money? Now we’re shy?”
Who knows if Weill managed to cash out earlier, or hedged somehow. But it’s certainly fair to wonder if maybe he didn’t, and what actually changed his mind about Too Big to Fail is that it transformed him from a God into the proud owner of $43 million lousy dollars, practically a regular person (if you exclude his prior earnings, of course).
As Scott Glenn’s “Roger the drug dealer” character icily complains in Training Day when Denzel and his corrupt LAPD pals dig up his ill-gotten nest egg: “****ing vampires want my pension!” All those years of hard work stealing the world’s money, and it’s gone in the snap of a finger!
Poor Sandy’s pension is gone. No wonder he’s rethinking things.
Read more: http://www.rollingstone.com/politics/blogs/taibblog/when-did-sandy-weill-change-his-mind-about-too-big-to-fail-and-why-20120803#ixzz24gZTgvYB
I agree, investment BANKS vs. savings BANKS should be separate!
In Business School, Accounting & Finance states “different capital risks” should be segregated.
It’s about time some of these fat cats would look the truth in the eye and do what’s right for the country! Did you see the Sunday SF Chronicle’s article about the x-head of CitiGroup and HIS latest comments!? Read it here: http://www.sfgate.com/default/article/Citigroup-Creator-Sandy-Weill-Says-Banks-Should-3733845.php
I wish more of our powerful Congressmen and Senators….as well as the media….would take action and do something…..
The sooner the better. Let the big boy Investment Bankers do their thiing with all the Big money. This keeps the regular banker’s greed in check!