http://money.cnn.com/2012/07/25/news/economy/sandy-weill-banks/index.htm?iid=Lead Sandy Weill, former Citigroup chair says separate investment banking from consumer banking. So the guy who really helped lobby for the 1999 repeal of Glass-Steagall would now like to see it put back in place. Guess he doesn't have skin in the game anymore and can be a little more sane. Here's a bit of the opening from that article: NEW YORK (CNNMoney) -- The man responsible for creating Citigroup -- the world's first financial supermarket -- said Wednesday that the nation's largest banks should be broken up in order to protect taxpayers. Former Citigroup chairman Sandy Weill -- who engineered a series of corporate takeovers and lobbying efforts to create Citigroup -- explained during an interview on CNBC why he now thinks a firewall between commercial and investment banks is needed. "What we should probably do is go and split up investment banking from banking," Weill said. "Have banks do something that's not going to risk the taxpayer dollars, that's not too big to fail." Weill's call to break up the nation's largest banks comes a little more than a decade after he helped orchestrate the merger of Travelers Group and Citicorp, a deal that created what was the world's largest financial services company. The deal was not have been possible with Glass-Steagall, a Depression-era law that prevented commercial banks from dabbling in investment banking, on the books. my question: is it even possible for the US to revisit a Glass-Steagall reboot, politically or financially? I would sadly vote that the answer is 'no,' but maybe we can keep hope alive.
I lean towards the right, but this needs to be done period. Consumer banking is one of those no-brainer profit centers: Charge higher interest on your loans than your borrowings. But putting it in higher risk investments, with the ability to lose, is not only ridiculous, it needs to be illegal. Folks need to see jail time for some of their behavior over this past decade.
FIFY. ...and I agree. Once a consumer bank can gamble away all the money from a 12 year old babysitter's savings account, we've crossed a line, as a nation, that should not be crossed. Unfortunately, as B-Bob alluded to (I think), the power players on Wall Street have bought themselves influence (and often actual positions) in government (federal and state), so it's unlikely they'd allow something good for the rest of the nation to actually happen.
Public sentiment can override that notion. The banks can only excuse their behavior so much. I think we will see the breakup in the next 5 years.
Good, breaking up banks can be step 1. Step 2, break up the extremely consolidated media & telecommunications biz.
Why doesn't the FDIC just charge a much higher rate to these banks that take on this risk? I mean that is how insurance works. Effectively stop offering FDIC coverage to the banks that want to play with deposits. Once customers leave in droves, they will be dropping the risk side of their business. Basically a work around trying to pass real reform in this gridlock....
likely some other way to make money on the horizon for his kind by doing this that we haven't yet anticipated... can't trust him...
That'd be an interesting idea... Banking used to be all about risk management: "Let's take calculated risks to help businesses produce and make a reasonable profit in the process." Recently, it's become: "Let's take as much risk as possible to maximize profits and get the hell out before anyone catches on and the scheisse hits the fan!"
Because risk is hard to quantify. JP Morgan thought their "whale" trades were not risky because their VaR models told them they weren't and because they were a hedging unit that somehow always made money. They can get away with all the technicalities. (technically now, leverage ratios have been at unheard-of-for-several-decades post-Great Crash like levels.)
I want to know what libertarian types think of this. Just another useless regulation. Banks should regulate themselves?
Awesome idea, and really easy to implement. If you want to be an investment bank and a commercial bank, you lose FDIC coverage. The mega banks will either lose all their customers, or split off into two companies. The problem will sort itself out, and it does not require any new laws, just a change in FDIC rules.
Without changing the current set of legislation, you've effectively reset the situation back to pre-2008, with all of its' inherent risks. To take FDIC and Fed discount money, the bank holding companies have to be given some sort of regulation. The degree probably isn't enough, but it's something, and it's better than the near-nothing most pure investment banks were receiving before.
Yeah I wasn't thinking this would be a mathematical exercise but more a conceptual one...just price it very high where its obviously punishing any non core banking activities that risk capital.
No you're resetting it back to pre repeal of Glass. They would shed their investment side of the business. Then you can work through gridlock for regulations but in the mean time you're not beholden to loopholes, poor laws, etc.
The devil is in the details. JP Morgan would have alleged that up to the moment the whale trades exploded, they were actually running a hedge at that office that reduced risk.
I don't believe the FDIC can just change the rules of who it wants to cover. It's governance is dictated by law, so you'd have to change the laws...
I'm interested in this as well. I've thought that libertarians believed in free will/rights of the individual (please don't drag this into the people vs. corporation debate) so long as your right to exist and live freely does not infringe on my same right. However, in society, messing with somebody's money is messing with their life. So how do the "rights" of the banks (unheard of "rights" until the repeal of Glass-Steagall) trump those of the individual?
