To the Editor:
In April 1998, Citigroup announced that it was buying Traveler’s Insurance, a purchase which was illegal under the Glass-Steagall Act.
Sandy Weill, the legendary CEO of Citigroup, announced at the time that he was going ahead with the purchase “in anticipation of the repeal of Glass-Steagall” It takes a certain amount of hubris to make such a statement, but the financial services industry has proven itself full of hubris, aided by their friends in Congress and in the White House.
Can you imagine taking your car to your State House, revving up the engine, and saying to legislators that you intend to drive down the Interstate at 90 miles an hour in anticipation of a change in the speed limits?
Weill and his friends put a full court press on Congress, armed with teams of lobbyists, and with major campaign contributions. On Nov. 12, 1999, President Clinton signed the repeal of Glass-Steagall, at the urging of Weill, Phil Gramm, Alan Greenspan, and Robert Rubin, among others.
What were the major arguments for repealing the Glass-Steagall Act, which had been signed in 1934 by FDR in response to the Crash of ’29 and the Great Depression? We heard that by removing the firewalls between banks, brokerages, and insurance companies, that financial institutions would “modernize, become more efficient, provide more services to the consumer, and be better able to compete globally”.
The quotes are from Sandy Weill in 1999. The need to compete globally is laughable (and sad) now that we have made ourselves the laughing stock of the world with packaged subprime loans and other failed derivatives.
There is poetic justice in seeing Citigroup in trouble. The stock has tumbled to near $5 a share, and announced layoffs have already been massive. The company is apparently desperately seeking a merger partner. Unfortunately, of course, the gurus of Finance are threatening to put us into another Depression through their greed and hubris. The deep trouble we are in now tempers the thought of Citigroup’s going under.
When FDR appointed Joe Kennedy to head the SEC, he knew that old Joe had played a lot of games on Wall Street. FDR said that this was precisely why he chose Kennedy. He wanted someone with inside knowledge who could help him to reform Wall Street. Kennedy told FDR that there should be a firewall between banking, insurance, and brokerages, in order that wealth does not become too concentrated in too few hands without proper regulations. Without a firewall, Kennedy said, Wall Street’s unbridled greed would take over, and all of us would suffer as a consequence.
What did Santayana say about learning from history?
Karl Tarbox, Wiscasset