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Breaking Up the Banks? . . . Just a Start

Posted by Larry Doyle on July 26, 2012 6:50 AM |

The news yesterday that once renowned banker Sandy Weill has called for the breakup of the now “too big to fail” banks is treated as some sort of earth shattering news development. News? Really? “Sandy, where ya’ been, my man?

In the neighborhood of my youth, news of that sort was typically used to wrap the daily catch down at the local pier.

While those on the airwaves may care to direct a measure of respect to Mr. Weill, the call to break up the “too big to fail” banks is little more than yesterday’s news. Who made this call early on? 

Simon Johnson and James Kwak (whom I interviewed in April 2010) made the case to break up the banks in cogent fashion in their fabulous tome 13 Bankers published back in early 2010. I have not only echoed Johnson’s and Kwak’s call often here at Sense on Cents (Sense on Cents/Break Up the Banks), but I called for the reinstitution of Glass-Steagall back in 2009.

Aside from Jamie Dimon, who in America truly believes that banks that are “too big to fail” are not also “too big to manage”, “too big to trust”, and ultimately “too big to exist”?

With little meaningful debate necessary regarding breaking up the banks, the real questions needing to be addressed include the following:

1. Execution: how does the splitting up of these behemoths occur? There will be a lot of moving parts to this equation.

2. If we are to break up the banks, then let’s also break up and discard a regulatory system that has shown itself inept and “too weak and too incestuous to work”. The days of self-regulation in the financial industry should be numbered. We have more than ample details to accept this fact as self-evident.

Recall that none other than the Project on Government Oversight made this call also back in early 2010. I highlighted POGO’s call in writing, Is FINRA’s Future in Doubt?,

Are the days of Wall Street’s self-regulatory organization known as FINRA numbered?

In the opinion of the very credible Project on Government Oversight, they should be.

3. If we are to disassemble the banks and regulators, then the last entity engaged in the incestuous conduct that has crippled our nation also needs to be dealt with in appropriate fashion. Should we overthrow Washington? Not literally, perhaps, but we should certainly eliminate those pols in Washington who gorge themselves at the Wall Street trough.

This question may be addressed easier by highlighting those pols without a feedbag. While we take the pols out to slaughter, let’s also stop the revolving door that has catered to the sows who work their way back and forth between Washington and Wall Street.

Too much to take on? Come on. You think our forefathers shuddered in the face of challenges.

Real change does not come by merely talking about it. The ideas once planted can easily snowball if people get on board and demand they happen.

Time to start be a little more demanding around this country.

Larry Doyle 

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • coe

    Let’s add another log to the “too big to…” fire – i.e. too big to regulate! Think about the alphabet soup involved in the process and the complexities of sometimes conflicting/other times overlapping accountabilities – FDIC/FSA/OCC/SEC/NCUA/FED/FHFA/ISDA/FASB/FINRA just to cite a few…toss in the extensive legislative and regulatory queue that is inching its way to implementation…and let’s give the well meaning but underpowered regulators all the benefit of the doubt…it’s no wonder why much is destined to slip through the cracks

    I remember the day as though it was yesterday when Sandy Weill was trumpeting the decline and fall of Glass Steagall when he was building Citi into the behemoth it has become…110 countries – with an impeccable brand recognition and reputation in 109 of them – the outlier – oh, the good old USA

    This step is long overdue, but will take years to gather momentum and solve the riddles…meanwhile – price rigging/money laundering/risk management fiascos et al will continue to pepper our senses

  • EB

    In addition to FINRA, why not go after SIPC, which is as bad an abomination. SIPC is the central insurance entity for Brokers, — the Brokers put a staggeringly small amount of capital in it, under the law it is for the purpose of insuring the broker’s clients against any possible thieving Brokers who go bankrupt, take the clients money and cannot pay their clients back. But SIPC, the arm of the Brokers, gets to choose the Trustee for the court. Since its the Broker’s money in SIPC and SIPC also chooses the Trustee, can you guess what happens to the poor clients?

    Try taking a look at what has happened to them in the Madoff case to find out.

    • LD

      I have written fairly extensively about SIPC over the course of the last three years. I also interviewed Helen Davis Chaitman twice regarding SIPC.

      Here is a link to all 25 related commentaries regarding SIPC.

      Sense on Cents/SIPC

      • EB

        Thank you. I had not seen those comments, and they are true and valuable. And Helen Chaitman has it right.

        But I wish that people like you would bring it all up again. The truth has gotten nowhere.

        • LD

          EB,

          In regard to your last statement regarding the truth and SIPC, the same could be said of MANY, MANY other situations as well.

  • Ginny

    Ehhhhh – his voice was shaking so much and his facial expressions and mannerisms looked suspicious to me – wouldn’t be surprised if this isn’t a “reverse-shift”… reverse the position and shift the blame to cover-up the damage he’s done himself and make him look like a reasonable person before they take him away in handcuffs or discover a detrimental email or two…

    Maybe my opinion is tainted by: Citigroup Mortgage Loan Trust 2007, etc…, Citigroup Global Markets Realty Corp., Citigroup Mortgage Loan Trust Inc., Citibank, N.A., Citi Holdings, Inc. and so on…. They all sound the same for a good reason – to confuse the average idiot judge… and attorney… on purpose. And half of the entities have address to empty buildings. “Duh, our mail goes here but we the post office forward it to the staff in the Cayman Islands…”

  • Gamma

    True.

    Interesting to think about history and perspectives. Weill would never have made this comment when be was busy having his lobbyists work to repeal Glass-Steagall.

    Dimon gained his power via Weill, now he can’t say publicly what we all know needs to happen.

    Thanks as always!






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