Sandy Weill says we should return to the Glass-Steagall separation of commercial banking from investment banking. You read that right: Weill, the man most responsible for dismantling the Depression-era law that kept the financial system safe for decades and who built Citigroup into a behemoth of banking, insurance and risky gambling.
On CNBC today, he said, “What we should probably do is go and split up investment banking from banking. Have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
The horse is out of the barn, the barn burned down, and the horse was carrying enough arsonist gear to incinerate the world economy. But better late than never, I suppose. Anyway, he’s got his: Forbes once estimated his net worth at $1.5 billion and he avoided prosecution for his Solomon Smith Barney’s shameful role in the Enron scandal. This can be another grudge to be cherished between Weill and his ousted protege, Jamie Dimon, now of JPMorgan Chase.
I’m still waiting for mea culpas from Bill Clinton, Phil Gramm and Alan Greenspan.
Weill is right, of course. Commercial banks, whose depositors’ money is backed by the U.S. taxpayer, shouldn’t be Wall Street playerz. But much more is needed. Among the reforms: Break up the Too Big To Exist banks and return them to regional banks (Hello, Seafirst) with a few larger money center banks in New York; wind down and outlaw most derivatives; instate a transaction tax on the activities of the investment banks that don’t lead directly to job creation; heavily tax bank executive compensation; curb bank political lobbying, and rebuild tough, arms-length regulation. Also, the dangerous shadow banking system must be regulated and controlled.
The jobs created by breaking up the biggest banks alone would be significant, moving their headquarters would be a shot in the arm to dozens of cities, and they would focus on actually lending for productive economic activity.
While the big bankers are whining (cue Jamie), just tell them, “Sandy said so.”
And Don’t Miss: When governments won’t govern, central banks must || Bloomberg
Today’s Econ Haiku:
The joys of summer
Greenland’s ice cap in the sea
Bleat ‘hoax’ as we burn