Excerpt: "Weill created the business model that Wall Street uses to this day - unleashing traders to make big, risky bets with other peoples' money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don't."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
The Man Who Invented "Too Big to Fail" Recants
26 July 12
’m in Alaska, amid moose and bear, trying to steal some time away from the absurdities of American politics and economics. But even at this remote distance I caught wind of Sanford Weill’s proposal this morning on CNBC that big banks be broken up in order to shield taxpayers from the consequences of their losses. Forget the bear and moose for a moment. This is big game.
If any single person is responsible for Wall Street banks becoming too big to fail it’s Sandy Weill. In 1998 he created the financial powerhouse Citigroup by combining Traveler’s Insurance and Citibank. To cash in on the combination, Weill then successfully lobbied the Clinton administration to repeal the Glass-Steagall Act – the Depression-era law that separated commercial from investment banking. And he hired my former colleague Bob Rubin, then Clinton’s Secretary of the Treasury, to oversee his new empire.
Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don’t. And Weill made a fortune – as did all the other executives and traders. JPMorgan and Bank of America soon followed Weill’s example with their own mega-deals, and their bonus pools exploded as well.
Citigroup was bailed out in 2008, as was much of the rest of the Street, but that didn’t alter the business model in any fundamental way. The Street neutered the Dodd-Frank act that was supposed to stop the gambling. JPMorgan, headed by one of Weill’s protégés, Jamie Dimon, just lost $5.8 billion on some risky bets. Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers.
Sandy Weill has finally seen the light. It’s a bit late in the day, but, hey, he’s already cashed in. You and I and millions of others in the United States and elsewhere around the world are still paying the price.
What’s the betting that one of the presidential candidates will take up Weill’s proposal?
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "Locked in the Cabinet," "Reason," "Supercapitalism," "Aftershock," and his latest e-book, "Beyond Outrage." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
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I love it when the big questions have such obvious answers. It proves we can all agree on something!
The odds must be at least a gazillion to one against that happening.
You're overly optimistic by several orders of magnitude.
I do believe many people like him have seen the unintended consequences of their careless self interest, and have reformed. John Bogle admits to having lost his way once, in his new book, but reminds us of Teddy Roosevelt's "The Man In The Arena" speech at the Sorbonne. He learned from his mistakes. Experience is the best teacher, we should not waste the lesson, this "man in the arena" is willing to share. Double check it all you want, but it makes sense and seems verified by one of the most ardent believers that the "innovations" could work this time. Is there any greater moral authority who has relearned what we learned long ago?
The asymmetrical polarization is in full swing, and many of the 1% are arguing openly for the exclusivity of their financial interests and an end to even a semblance of economic democracy.
Sure.
Just don't forget the role of Reaganomics, Bush I, Bush II, Cheney, Boehner, Phil Gramm, Tom DeLay, Jack Abramoff, et al ...
I now have some reason to hope that the originators did not intend to create such a mess, and are finally ready to admit even the finest theory falls apart with too little protection from many carelessly self-interested (and some actual criminal) players.
It seems that point has sunk into Mr. Weill, one of the last persons I would have expected to be so forthcoming. Perhaps he can be the master hacker turned legit or Frank Abignale of "Catch Me If You Can" fame. I tend to believe he is more like Charles Mitchell, though, than a Bernie Madoff like, total, and deliberate, Ponzi con man. I hope he does become a modern Charles Mitchell (a Million dollar settlement in 1933 was a lot of money then). He was also smart enough to make another fortune with "less carelessly self interested" methods.
This just keeps getting better and better!
The most important and telling part, and the part that must be repeated at every turn is this:
"Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money."
"Other peoples' money" is none other than the depositors money in savings accounts that the government insures through the FDIC; the investors money that is supposed to be protected from risk by the firm. It's a win win situation for them.
The big traders' motto is: Let's be fair, let's flip coins. Heads I win, tails you lose.
Dina Rasor and Jason Leopold, of Truthout wrote an article entitled:
"Hide the Ball: Romney's Long History of Hiding His Exorbitant, but Questionable, Business Practices"
I urge every RSN reader to read and study this article, and spread its finding and revelations, everywhere. The MM is not going to do it. We have to do it, and do it constantly with complete knowledge.
The plutocracy is counting on our complacency.
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