Architect of Citi says bring back Glass-Steagall

November 6, 2009

Objective observers mostly agree that it doesn’t make sense for banks to be in the securities business, not if they’re explicitly insured by the government. Wall Streeters invent rationalizations to support the current structure because a large chunk of their profits come from trading.

It’s very refreshing that John Reed, an architect of Citigroup — the biggest, most disastrous financial supermarket of them all — now says the merger was a mistake and banks should be broken up.

From Bob Ivry, Bloomberg:

Congress’ overhaul of U.S. financial regulations should include ordering banks to hold more capital, ensuring executives’ compensation is aligned with long-term profitability and banning firms that take deposits from also engaging in equities and fixed-income trading, Reed said.

“I would compartmentalize the industry for the same reason you compartmentalize ships,” Reed said in the interview in his office on Park Avenue in New York. “If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity.”

Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.

“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities. “When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”

Again, this is just half the battle. Getting dangerous activities outside of insured banks doesn’t mean the activities themselves, which in many cases still pose systemic risks, won’t continue to benefit from an implicit government guarantee.

As long as investment banks remain highly complex, systemically dangerous institutions, they’ll always have a government lifeline. (“No more Lehmans!”)

Comments

Well, no point in being sorry now. The best thing to do right now is to save american companies that have been the pride and more importantly the reasons for america’s wealth and economy for at least a century to rebuild. There is no need to take over the top dramatic and drastic measures. Just need to re-group and work out of this mess. Let Citi and other big financial companies work their way out of this and put in rules to reduce risks by good regulation.

Breaking up big companies of America will only cause future peril as the smaller companies may not be able to compete well with the big power houses overseas and eventually other nations may end up owning the most profitable but smaller companies of America…

Hope Obama and every other citizen realizes that.

Posted by Sam | Report as abusive
 

‘An architect whistleblower super hero’ ? Did he send this letter from Barbados or Bermuda ? I disagree, there should be a further consolidation of smaller and community banks, a program which Feds and Competitions’ Commissions and New Boards of Directors’ should manage so that (anti-) trust competition balances the system, Rolfe, i.e., your Depeche Mode dynamic pie chart should tick anticlockwise, almost moving backwards while moving forward.

Posted by The Fountainhead | Report as abusive
 

We must bring back Glass-Steagall. Nothing else will work!!!!

Posted by Lance | Report as abusive
 

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