Sandy Weill's signature accomplishment during his long career on Wall Street, Citigroup, engaged in fraud on a massive scale, unfettered risk taking and then needed a massive taxpayer bailout during the 2008 financial crisis because it was so big it couldn't be managed.
Yet only now does Weill say it was all a mistake.
That's the context you probably didn't get during Weill's bizarre interview with the business news network CNBC (where I used to work) this morning. After years of defending the monstrosity he created and the monstrosities that it spawned, Weill now says that these big banks are too big -- they can't be managed and their existence may lead to another financial crisis.
Weill, of course, spent much of his 50-plus years on Wall Street creating just the opposite, the entity known as the financial "supermarket" where traditional commercial banking services of lending and deposits are combined with risk taking Wall Street stuff all in one place. Citigroup was the first, and unfortunately not the last, of this disastrous breed of bank.
It's a shame it took mountains of sleaze, tremendous shareholder losses, a financial crisis and taxpayer bailouts for Weill to see the light because there are many valid reasons to break up the banks. We had a financial crisis (and subsequent taxpayer bailouts) largely because of enormous risk taking at the mega-banks like Citigroup, which led others to blindly copy the firm's risk taking model until the entire system blew up in the fall of 2008.
Even so, it's hard to take Weill seriously. First this is a man with an ego the size of the bank he created. People who know him say he needs media attention like an alcoholic needs a stiff drink, and he's gotten precious little of it since retiring from the banking business six years ago. Yesterday made him feel like the same old Sandy again.
Then there's his record as a banker, which should banish him from ever dispensing advice on the business he helped destroy. Follow this timeline: In 1998, Citigroup was created by merging the investment banking business of a company Weill ran, known as Travelers Group, with the large commercial bank known as Citicorp. The merger was technically illegal because still in existence was a Depression-era law known as Glass-Steagall, which prevented such combinations.
Glass-Steagall was based a simple premise: Commercial banking deposits are federally insured. So why should the taxpayer be on the hook if some mindless trader bet the ranch and lost?
That common sense was lost on Weill, his buddies in Congress and the Clinton Administration, particularly then-Treasury Secretary Bob Rubin. In an act of bipartisan stupidity, the whole lot of them got rid of Glass-Steagall and replaced it with the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which made Citigroup legal, and ushered in an era of unprecedented sleaze on Wall Street.
Of course there's was always sleaze on Wall Street -- it just got bigger with Citigroup. Firms like JPMorgan and Bank of America copied the flawed mega-bank model and risk taking. Smaller players like Bear Stearns, Lehman Brothers, Morgan Stanley and even the prestigious Goldman Sachs began ramping up risk to compete with the supermarkets that had so much money and capital at their disposal.
But Citigroup wasn't just big. It was bad -- literally bad. The firm under Weill financed frauds like Worldcom and Enron without a second thought. Its stock market analyst Jack Grubman -- who was supposed to be dispensing unbiased advice to investors -- would moonlight as an investment banker, thus raking in fees from companies whose shares he was touting to unsuspecting investors.
Weill himself was in the middle of the muck; he prodded Grubman to upgrade shares of AT&T, where he was a board member. He did it at a time when the firm was vying for a lucrative role as an AT&T underwriter. When Grubman did as he suggested, and his bankers won the deal, he then got Grubman's kids into a fancy pre-school in Manhattan, which Grubman once lamented was harder to get into than "Harvard."
You can't make this kind of sleaze up. Nor can you make up what happened next; Weill resigned as chief executive at Citi, but remained as its chairman until 2006, and the firm began to ramp up risk as a way to pay for running such a costly operation.
Yes, the House of Sandy came crashing down in 2008, a couple of years after he was out. But his team was still in place. Years earlier Weill banished Jamie Dimon from the firm because he was jealous of the press attention that Dimon received. But his yes men and women were a disaster as Citigroup's failure in 2008 demonstrated.
One of those yes men was Rubin, who jumped to Citigroup not long after he helped Weill kill Glass-Steagall, making tens of millions of dollars as a deal maker and board member.
At least Rubin has kept a low public profile. Weill, until today apparently, has been in denial. He's defended killing Glass-Steagall and he never took responsibility for the sleaze and risk taking he set the stage for with his diabolical concoction.
Today Citigroup is a shell of its former self, its shares hammered by the financial crisis. Most other banks aren't doing much better, and they can thank Sandy Weill for showing them the road to ruination.
Their acts have been worse for this country than anything our socalled enemies have done.
In September, 1998, Mr. Cunningham opposed the application, approved by the Federal Reserve Board on September 23, 1998, by Travelers Group Inc., New York, New York, to become a bank holding company. In October 1998, in a petition to the United States Court of Appeals (Case Number 98-1459 - http://www.creativeinvest.com/USAppealsCourt.pdf) concerning the Travelers Group Inc./Citicorp merger, Mr. Cunningham cited evidence that growing financial market malfeasance greatly exacerbated risks in financial markets, reducing the safety and soundness of large financial institutions. He went on to note that:
"The nature of financial market activities is such that significant dislocations can and do occur quickly, with great force. These dislocations strike across institutional lines. That is, they affect both banks and securities firms. The financial institution regulatory structure is not in place to effectively evaluate these risks, however. Given this, public safety is at risk."
This is not news. Weill wrecked the banking and financial system and corrupted the political system, all in a sucessful effort to make hundreds of millions of dollars. Now, let's really look at his activities. Clawback all bonus earnings from former senior executives at Citi, now.....
Heck, given his tiff with Jamie Dimon he might be saying in part to tick off Jamie Dimon.
What would Madoff have done and said, if he had experienced a revelation? An epiphany, that the entire house of cards could quite easily come tumbling down at any second under its own increasingly unsustainable weight. Do you suppose he might have considered what the implications would be for him? Perhaps he might have sought to shore up that system in some way, out of sheer desperation?
“only now does Weill say it was all a mistake.”
Mayhap he was surrounded by those who confirmed his rendition of reality daily. Or else, he expelled all those that didn’t. Thereby creating a bubble, in which anything might exist unchallenged. If only he had been required to validate that understanding on a regular basis, he might have noticed the flaws in it sooner.
“creating just the opposite”
It’s a bit like media, creating designer news. Before long they may even begin to believe their own reports. Now where is that likely to lead? Probably to a situation where citizens can do a better job themselves.
“The merger was technically illegal”
Then why no outcry for prosecutions?
“sleaze on Wall Street -- it just got bigger with Citigroup.”
Plus the Bat-Sh*t signal, that no one will be held to account.
“You can't make this kind of sleaze up. ”
But you sure can fail to report it.
“the road to ruination”
is papered with mediocre media.
If this isn't the most insightful summary of the Eurozone debacle, then what is?
The entire global financial system is Kafkaesque: the bureaucracies of the Central State have two intertwined goals: protect the financial Elites from the consequences of their parasitic predation, and protect their own power and perquisites.
While Marx understood the predatory, parasitic nature of Monopoly Capitalism, he did not anticipate the State's partnering with Cartel/Crony Capitalism; in effect, the State has appropriated the appropriators, stripmining the citizenry to protect the financial sector from the consequences of their "business model" (leverage, fraud, embezzlement and the misrepresentation of risk). But the State doesn't merely enable ("regulate") the predation of financiers; it also stripmines the citizenry to fund its own expansion into every nook and cranny of civil society.
As Kafka divined, centralized bureaucracy has the capacity for both Orwellian obfuscation (anyone read those 1,300-page Congressional bills other than those gaming the system for their private benefit?) and systemic avarice and injustice.
The convergence boils down to this: it would be impossible to loot this much wealth if the State didn't exist to enforce the "rules" of parasitic predation.
In China, the Elite's looting proceeds along somewhat different rules from the looting of Europe and the U.S., but the end result is the same in all financialized, centrally managed economies: an expansive kleptocracy best understood as the convergence of Marx, Orwell and Kafka.
Simply put, the 1% and their bought and paid for politicians work together to keep the 1% wealthy, unpunished for wrongdoing, and in power......while the ordinary lower class people are wage slaves with few rights by law and who wind up paying financially for the crimes of the 1%.
Yea, it is a combination of Marx, Orwell, and Kafka.
Bizarre yet true.
I also find it a bit strange. Perhaps the unconscious motivation is to want JPM Chase to be broken up....after all, grudges are grudges and personal histories are hard to forget, let alone erase....especially if you have a large ego.
Why not?
So the next time you hear Harry Reid, Chucky Shumer, or Dick Durbin talk trash about the too big to fail banks, remember that they all voted YES for the bill that allowed it to happen.