Architect of Citi says bring back Glass-Steagall

Nov 6, 2009 16:14 UTC

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!”)

COMMENT

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

Posted by Lance | Report as abusive

Recession indicators

Reuters Staff
Jan 19, 2008 14:24 UTC

If you’ve been surfing the economics blogosphere recently, you’ve likely seen charts of various economic indicators pointing towards a recession. Forthwith, my (growing) collection. Lots more of these out there. If you’ve got one to add, send it our way:

YoY change in unemployment, by month. From the NYT:

Credit Card Trends, (via the NYT, hat tip Mish):

Manufacturing sentiment. The Philadelphia Fed’s general economic index:

Money Supply (using the “M Prime” calculation of the Von Mises Institute, again thanks to Mish). Check out that link for a full explanation of the M Prime money supply calculation. Fascinating read.

Housing Starts and Completions (hat tip CR):

The Philly Fed’s calculation of states with increasing activity. Thanks to CR.

COMMENT

I beleive in the free enterprize system.
I beleive in a free USA.
I do not beleive the government has the right to tell me what I can and can not do.
But, in all societies, laws and regulations are needed to protect the people from others hurting them. I can not buy a Farrari and drive it 200 MPH down the interstate for laws and regulations prohibiting it due to the fact I may injure someone or worse.
The Glass Steagall Act was created to keep the banks from risk of lossing depositors money and also from a faulse market inflation.
Seems the regulations worked just fine until Clinton and his administration decided to remove the banking “safety net” and at the same time enact the houseing revitalization act.
This was a receipt for disaster and thats what we have now.
Pouring $$$ into a boat with hole does not work.
The holes need to be fixed before we can stop the leak.
The whole world (consumers and governments)has lost its confidence in the USA’s ability to to regulate the actions of the criminals that made the loans, (housing act) bundled bad loans and sold them for more than they were worth.
As for the comment about we should not be like Russia and nothing needs to be regulated by government, Im sure your doors at your home are never locked and anyone can come and take anything you have, at will, and you dont mind.
Or do you depend on laws and regulations to prevent this?
The repeal of the Glass Steagall act did just that. Our government allowed the criminals into your bank account, use your money to invest in the stockmarket with you having a say.
Bill Clinton also signed the Commodities Futures Modernization act of 2000 which allowed the AIG’s to trade without regulations.

Posted by Mark64 | Report as abusive
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