“My father lost his lifetime savings during the Depression. And it was quite a family event. And if he had ever known I worked in a bank he would have died yet again.”
Ironic words from John Reed, one of the two bankers directly responsible for the repeal of the Glass-Steagall Act in 1999 which sanctioned the creation of Citigroup (from a merger of Citibank and Travelers) and helped to usher in an era of Too Big to Fail. He recently sat down with Bill Moyers for an eye-opening view on the state of banking then, and now.
I know a few Citibankers from the pre-Citigroup era who see Reed as basically a good guy who just got sucked in by Sandy Weill, the i-banking snake-oil salesman whose“whole life was to accumulate money,” according to Reed. (Of course the cynic in me asks how much Reed really minded when Sandy helped the both of them to an eye-popping $27 million in compensation — each — in the very first year!)
At least Reed has been fairly upfront about his personal role in the events that ultimately led to our current financial crisis. He also highlights what’s still wrong with our system today and why another crash is probably closer than we’d like to think:
Lawmakers inevitably learn as lobbyists tell them things. It’s sort of like a doctor being sold new medicines, they can’t stay on the forefront of the pharmaceutical technology, they rely on being educated to some extent.
And there’s a great deal of this “education” still happening as you read this.
More than half of the derivatives- trading business of Goldman Sachs Group Inc., Morgan Stanley and three other large banks could fall largely outside the Dodd- Frank Act if they succeed in lobbying regulators to exempt their overseas operations, government records show. (Businessweek)
Matt Levine at Dealbreaker even thinks that U.S. banks may have gone so far as to get the foreign ministers from other countries to do their dirty work for them:
[W]hen Jamie Dimon gets on a public investor call and says “the Volcker Rule will destroy liquidity and capital raising and all human society,” everyone’s all, oh Jamie, you and your fuming, how cute. But when he calls a client and says “the Volcker Rule will destroy our ability to make markets in your bonds,” the client listens. The trick is to convince sympathetic and important clients that a restriction on banks will destroy their ability to fund themselves. Then those sympathetic and important clients go and lobby and get press coverage that is significantly friendlier than “banker wants unrestricted banking.”
This is a great illustration of exactly how the banks, the politicians and the press work together, with varying degrees of intention, to keep in place a status quo favorable to banking interests.
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Image credit: my_new_wintercoat on Flickr