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Northwest Voices

Seattle Times letters to the editor

April 28, 2009 at 4:00 PM

Breaking up banks

Solution: enforcing oversight controls

The conclusion of Sunday’s editorial states, “A new antitrust law is needed. No American company should be too big to fail” [“Break up banks ‘too big to fail,’ ” Opinion, April 26]. I would opine that your comment is an epiphany, not a solution, and only states the obvious.

I was a senior bank-lending officer in 1979 when our government used its guarantee to help bail Chrysler out of its financial predicament at the time. That program served its purpose, however, because Chrysler’s problem was internal and not endemic within its industry, and a bankruptcy could be managed.

The auto industry today is a totally different bag of snakes, with common industrywide problems — shrinking markets, tighter financing, climbing inventories, weaker suppliers, and huge operating losses. Then we add the problems within our banking industries — both commercial and investment –which you enumerate in your editorial. Again, it is an industry problem, not one or two problem entities.

There is no question that all of the failing entities have been too big to manage from an oversight standpoint. But it is too easy to say, “No American company should be too big to fail.” The question is, what can we do about it?

The answer is greater oversight controls and their enforcement. We must bring back the Banking Act of 1933, which was repealed in 1990, because it would force the separation of commercial and investment banks. Each has a different mission — interest income and commercial financial services versus capital value appreciation of financial assets –and each needs its own supervisor. Separate federal departments for each would enforce the necessary controls.

As we see from today’s malaise, it is important to do it right and stay connected to the Federal Reserve Bank, no matter all the political pressure down the road to make someone else’s life a lot easier.

— Richard H. Daniel, Bainbridge Island

Replace officials with award-winning economists

Regarding “too big to fail” banks such as Citigroup, you advise, “the bigger the player, the bigger the risk,” and “it may be wise to break up the biggest financial companies.”

In 1998-1999, when Citicorp and Travelers Group merged to create the world’s largest financial-services organization, did you think the reason for previous breakups of industrial monopolies didn’t apply to banks, which “are already regulated,” and only now do you conclude that “the old regulation did not do the job”?

The Glass-Steagall Act, enacted following the Great Depression, did forbid banks to merge with insurance underwriters, but at the time of the Citigroup merger, Travelers CEO Sandy Weill (who soon became Citigroup’s CEO and who recently used its jet for a family vacation after receiving a $45 billion bailout) believed that “over time the legislation will change.” Sure enough, a year later, the Gramm-Leach-Billey Act repealed Glass-Steagall and allowed conglomerates to offer a mix of commercial banking, investment banking, insurance underwriting and brokerage.

Besides Phil Gramm and a compliant Congress, Robert Rubin –consecutively a 26-year Goldman Sachs executive, Clinton administration adviser and treasury secretary, Citigroup chairman and director, and adviser to the Commodity Futures Trading Commission — deserves a big share of the blame. As adviser to the CFTC, Rubin strongly opposed regulation of derivatives.

In short, there was no effective regulation.

Since Citigroup is only one of many toxic conglomerates that formed and ballooned over the past decade, your epiphany is way too little and too late. It would be wiser to replace the former Wall Streeters who serve in our Treasury Department and as presidential advisers with Nobel Prize-winning economists who vigorously disagree with the current strategy.

— James Bruner, Oak Harbor

Comments | More in banks, Federal bailouts

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