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Wall Street Legend Sandy Weill Stuns the Financial World: ‘Break Up the Big Banks’

The financial pages are buzzing this morning with the Big News that Sandy Weill, 79, said in a CNBC interview that the big banks should be broken up, and made a few other great suggestions, leaving out, of course: ‘Prosecute the Fraudsters!  Hang Em!’.  Andrew Ross Sorkin’s shock was largely due to the fact that Weill was one of the Kings of Mergers, creating a mega-corporation by marrying his insurance and investments Traveler’s corporation to Citicorps, with a global reach that seemed to have astounded the financial world. He was one of the major forces behind KILLING Glass-Steagall under Clinton; some thought at the time it was a dare for Congress not to pass Gramm-Leach-Bliley, and well…you know it went from there (adding in the effects of the CFMA).

From Linette Lopez at Business Insider, some amusing questions to Geithner:

“And in this world of instant communication, his words were news the instant he spoke them.

That means that hours later, Congressmen on The Hill questioning Tim Geithner had a new song to sing — ‘let’s take a look at Glass-Steagall’, a law repealed during the Clinton Administration  that  separated investment banking from retail banking.  The crazy thing is, this song was coming from both sides of the aisle.

Representative Carolyn Maloney (D-NY) mentioned Weill’s comment in her opening statement to Geithner and that got the ball rolling. She said that his words were “absolutely huge,” and asked Geithner to write a report on how 2008 could have been prevented had Glass-Steagall been enacted at the time.   

After that, member after member picked up the torch. [snip]

Michael Capuano (D-MA), a fiery member of this committee to be sure, said “funny how people who voted to repeal Glass-Steagall are now complaining that banks are too big.”

Ms. Maloney toughness: Write us a report, please, Timmeh.   Our Secretary of the Treasury said…he hadn’t seen the Squawk Box interview, so he had no clue as to what Weill meant.

Chris Dodd said told Squawk Box that forcing the Big Banks to downsize was simplistic, saying that it’s not the size of an institution, but the amount of risk it carried on its books.

“…Citi’s former chief was wrong to call for an end to financial supermarkets. “Just breaking up the banks is not the solution,” Dodd said, even as he insisted the tools of Dodd-Frank could, in extreme circumstances, force a systemically risky institution to break up.

“The legislation allows for that Draconian step to be taken if necessary, not just with banks but with institutions that pose substantial risk to the country,” Dodd said. “They have the power and authority under this legislation to actually do that.”

The former Democratic senator from Connecticut is now the head of the Motion Picture Association of America, the top trade organization for Hollywood studios. Along with Massachusetts Democratic Rep. Barney Frank, Dodd authored legislation that sought to curb the excesses of financial institutions labeled “too big to fail.”

Pretty hilarious, since we were told expressly that Dodd-Frank was going to create standards for systemically important and dangerous banks, and provide mechanisms for doing exactly that, and …er…not one of them has been broken up, though the risks are far greater than ever.  (Sheesh, Chris; wonder when those final rules might be decided, anyway?)

“Sandy Weill’s office once displayed a hunk of wood inscribed with the words “The Shatterer of Glass-Steagall:” (link) nytimes.com/2010/01/03/busi…

 “Sandy Weill: Break up the big banks (so I can rebuild a TBTF one for myself and break it up. Rinse. Repet (sic).”

“Maybe CNBC can now get Angelo Mozilo to go on and say banks should make mortgages based on current incomes, not future home appreciation”

Yves quotes Charlie Gasparino, and agrees with him:

“….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.”

In the end, though…I’m gonna go with her final paragraph here (my bold):

“But I think the significance of Weil’s volte face is a bit different. It’s a reminder that talk of reform is cheap and without consequence. Would any of these former Big Names who would love to be hauled out of mothballs (ex John Reed, who never liked the limelight and I believe in genuine) be serious about advocating change if they thought it really might happen? This isn’t a sign of a break in the elites, this is at best pandering to the 99%, or adopting a faux provocative position to get some media play. Look at how the British regulators, who have been at least willing to talk tough about banking and pushed hard for a full split between depositaries and trading firms, are in deer in the headlights mode over the Libor scandal. This isn’t just being caught out at having missed a big one; there is an astonishing inability to leverage what should be seen as a God-given opportunity to put reform back on the front burner.

When I see someone like Weill or Dick Parsons putting a big chunk of their ill-gotten gains to fund lobbying or a think tank promoting tough-minded financial services reform, I’ll give the backers their due for making a sincere and serious effort to undo the considerable damage they have done. But absent that, this career death-bed conversion is a hollow and insulting gesture.”

It’s all pretty fun, given various reactions all the way from ‘Wow, this is a major game-changer!’ to…well…’It won’t change a thing, what a tool!’ And what do you think?  Will regulators ever designate a Big Bank as TBTF?

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