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Sandy Weill said what?

from Peter Radford

I must be getting old. Too old to understand English anymore. Sandy Weill, architect of Citibank’s ill advised growth, and long time advocate of the form of universal banking that brought about the crash, has just pronounced on the state of banking.

And called for the break up of the big banks.

Pinch me please.

Or at least roll the drums.

This is an astonishing volte face for someone who championed the elimination of Glass Steagall. More than that. He engineered a merger between Citi and an investment bank that was illegal at the time, so he had to get the law changed in order to complete the deal. He was that involved in shaping the modern banking scene. He was one of the fiercest opponents of regulation. He was outspoken, hard charging, and the very essence of the kind of banker who now dominates the industry. The mega banks were, in large part, his creation. 

Now he wants them broken up.

There are two ways of looking at this.

One is that he sees the error of his ways and now wants, for all the right social reasons, the banks to be cut down in size and scope.

Or.

Maybe. Just maybe the reason he is willing to undo his life’s work is that his shares in Citi suck. A quick analysis tells me that Citi is worth more to its shareholders broken up. The parts are definitely worth more than the whole. So Our reformed Mr Weill is simply being a smart investment banker. He stands to gain a lot. A whole lot. So of course he wants them broken up. It’s all about the financial engineering.

Do I care?

Not really.

If Weill and his ilk make a bundle when we break up the mega banks, so be it. The social goal is to get rid of them. The taxpayers will win as well. The only people to lose will be the current executive teams of the banks who are the only reason those banks exist in their current form. No one else benefits. Indeed, as Weill is letting us know, everyone else, even the shareholders, suffer. And that’s saying something.

Not only are the mega banks too big to fail, too big to manage, too big to regulate, too big to analyze, and too big to understand, but they are too big to own. They have outgrown any useful purpose.

Break up the banks! Even Sandy Weill agrees

  1. Went Backward
    July 27, 2012 at 9:50 am

    Well he made $300M from the successful repeal, why should he want others to now erode his wealth! Sound move it seems.

  2. Lucy Honeychurch
    July 27, 2012 at 6:11 pm

    Think Standard Oil.

  3. Ken Zimmerman
    July 27, 2012 at 7:22 pm

    If a problem cannot be solved, enlarge it.
    Dwight D. Eisenhower

    This statement by Weill and the reactions to it underline why US economic policy at least since the 1970s has largely failed. The policy makers (economists, members of government, etc.) listen to people like Weill. But the problems Mr. Weill and others like him are wanting to solve are not the problems of the economy as a whole, for the nation and the world. They are problems of how and why to invest to maximize return to themselves and sometimes others like them. Policy makers for the nation and the world are working on very different problems. Problems related to economic growth and stability for all citizens, about wealth distribution, about employment, about long-term security and well-being for the largest portion of the world possible. By acting on advice from Weill and others like him policy makers artifically and wrongly narrow the problem to one Mr. Weill wants solved, not the much larger problems policy makers should be focused on solving. Thus the solutions crafted are aimed at solving the wrong problems. They often solve those problems quite well. Mr. Weill gets richer. But fail to solve the larger and real problems policy makers ought to be working on. Not to be trite, but one of the greatest American philosophers summed it up, “If you don’t know where you are going, you might wind up someplace else.” (Yogi Berra)

  4. July 30, 2012 at 7:28 am

    If someone like Sandy Weill calls for the break up of big banks perhaps he does so because he already knows this is going to happen anyway. And it is perhaps going to happen because something is under way that will make this an unavoidable step. The libor, euribor, and tibor manipulation scandal hit the worlds largest banks hard. Not only they will have to pay for that. More importantly they have lost a powerful profit-generating machine for which there is no compensation in sight, and that might force them to find a new business model and to scale down.

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