Guest Post: The Absurdity Of Sandy Weill

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

The Absurdity of Sandy Weill

I’m suggesting the big banks be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk and the leverage will be something reasonable.

This from the guy who provided the impetus and the funds to end Glass-Steagall? Totally absurd — akin to Joe Stalin renouncing Marxism-Leninism and the gulag archipelago on his deathbed.

Glass-Steagall’s separation between depository and speculative institutions — especially during the Bretton Woods period — was a relatively robust system; there was never a large-scale banking calamity of the nature of 2008 or 1929 under its regime. Certainly, it had its imperfections — above all else that it never prevented bankers like Weill from chipping away at it up to the point of repeal — but the proof of the pudding is in the eating, and Glass-Steagall presided over a period of growth and stability.

While the data tends to show that the end of Bretton Woods in 1971 was the real catalyst of the financialisation, globalisation, deindustrialisation and debt buildup that ultimately flung the US into a depressionary deleveraging trap, the end of Glass-Steagall was profound.

Depositors’ funds became a medium for the creation of the huge and sprawling shadow banking and derivatives webs.

The blowout growth in shadow banking was presaged by the end of Glass Steagall in 1999:

And the slow contractionary deleveraging of shadow banking has been a significant force in keeping the economy depressed since 2008. Any contrition on the part of Weill for his role in repealing Glass-Steagall might as well be an attempt to close the stable door after the horse has bolted. It’s like trying to uninvent the atom bomb after Hiroshima. Weill was the guy who — above anyone else — was responsible for the damage done.

Coming out and claiming that reimposing Glass-Steagall would fix the problem is inadequate. If he wants to be taken seriously he should match every dollar he spent trying to get Glass-Steagall repealed with new lobbying funds to reimpose a separation between banks that accept deposits and the shadow banking and derivatives casinos.

Beyond that, I think that this is very telling. The financial institutions will do anything to avoid the ultimate free market solution — the disorderly liquidation of the system they created via default cascade. If high-ranking members of the financial elite are willing to talk about reimposing Glass-Steagall, they must be seriously concerned that the system they built is getting dangerously close to self-destruction.

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Jay Gould Esq.'s picture

The hypocrisy of Sandy Weill knows no bounds.

veyron's picture

Don't bite the hand that feeds you ...

Dr Benway's picture

Yeah there are few things worse than a hypocrite. A crooked cop is worse than a straightup criminal.

Thomas's picture

I am torn on this one. What if he really does see that he hosed the system. He hasn't yet had any Greenspan moments in which he explciitly pretends not to be a big problem. Jack Abramoff also seems to be trying to repent. We should let these guys denounce the evil doers. They have a bigger audience than anybody else. If, on the other hand, Sandy tries to pretend like he did not screw up the system, deracinate his nuts.

economics9698's picture

Glass-Steagall is a red herring designed to get people, usually on the left, to focus away from the fundamental problem of banking, the Federal Reserve and fractional reserve banking.

Glass-Steagall (passed 1933 as a payback to JP Morgan for the 1890 Sherman and 1914 Clayton anti trust acts designed to break up Rockefellers empire) was the law during part of the Great Depression from 33-40, 1953 recession, 1957 recession, 1969 recession, 1975 recession, and 1981 recession as well as the stock market “Black Monday” in 1987.  Then we had the S&L bust as well as the Dot Com boom that exploded a year after the 1999 repeal.

Glass-Steagall has nothing to do with nothing.  Its one of those conspiracy theories that never dies.  Less than 4% of the housing loans would have been affected by the law. 

The problem is the Federal Reserve.  The Federal Reserve counterfeits money and creates monetary expansion of credit.  The expansion of credit to unworthy investments creates the boom, and misallocation of resources, and the eventual bust. 

Banking 101.

To fix the problem have 100% reserve banking.  Banks issued their own currencies back by gold or silver. 

Its not hard to figure out, the elites only want to make it hard to figure out.  The more regulations and bull shit they can throw at the peasants to complicate the real issue the better for the elites.  They live for complexity hoping the peasants never look at their theft closely.

You need to do better than this.

SheepDog-One's picture

Great points. Glass Steagall is no panacea.

overmedicatedundersexed's picture

there is a rumor that he was the inspiration for JABBA THE HUT, uncanny they look so similar.

Precious's picture

The obvious question on everyone's mind is exactly when will this cocksucker return the money he made from the mistake.

sharkieboy's picture

And i thought that repealing Glass Steagall and getting back  to  the gold standard will solve all the problem of the world.  The world seen plenty of boom and bust when the gold standard was king. It is all comes down to human behavior and fear and greed. Get used to  it...

Baron Robber's picture

The fed and the criminal banking cartel are the problem, and Glass Steagall had a huge role. You are wrong. Your 4% mortgage figure is a canard.

economics9698's picture

The 4% number comes from CATO economist Dan Mitchell.  If GS was repealed in 99 and the boom started in 2003 not much time to change.  You can look for yourself with the FDIC web site and the records of deposits.

The concentration of banking and wealth comes from increased regulation and the Fed bailing out the TBTF banks.

http://www2.fdic.gov/sod/sodMarketRpt.asp?barItem=2&sCounty=all

lightning's picture

Like many, you have some information, but it is incomplete, considers only part of the whole, and selectively picks what to examine.  You are correct in saying that the 1999 repeal has limited impact on the housing crisis.  Problem with that statement is it ignores exactly how these defaulting mortgages caused/created a systemic loss within the entire financial industry.  It is the systemic domino effect that created the financial cisis.  If we had classic Glass-Stegall bad housing loans wouldn't have created a systemic crisis throughout the industry.  It would have banckruped some banks, but would have limited the damage to the banks making the bad loans.  It was mortgage backed CDS and derivatives that created the "systemic crisis", which was a result of the 1999 repeal that allowed classic banking to combine with speculative banking.  That brings me to the next point in which you are partially correct.  The Glass-Stegall that was repealed in 1999 was not the act as it was passed in 1932.  Glass-Stegall was eroded over a couple of decades by the banks.  Hence, although you are correct in saying that Glass-Stegall is not soley responsible for the crisis, you are incorrect in saying it played no role whatsoever.  The erosion and eventual repeal of Glass-Stegall along with the Federal reserve, fractional reserve banking, and fiat currency play a role in the mess we are in.  We need to address each of these points in order to ensure a stable economy. 

economics9698's picture

 

You have some good points but the banking market has been becoming more concentrated for decades.  You are right but you need to go back even further to look at the banking concentration.  It started with the creation of the Federal Reserve as a institution to limit competition.

The FDIC on line records go back to 1994 and the trend is indisputable, only today it is worse.  The top 8 banks now have over 50% market share or “moderately concentrated” which is very dangerous.

I am sure the repeal of G-S had some affect on the markets, how could it not?

But I think you are looking past the solution to market concentration and that is to allow the free market to work.

At this late stage if the authorities want to break up the top four I would not protest but unless banks are allowed to fail they will continue to commit the same errors over and over, get bailed out, and continue their march towards centralization and control over market share.

The intent and propose of the Federal Reserve is to;

1.  Stop competition.

2.  Create money out of nothing to lend and get the nation addicted to cheap credit.

3.  Control bank reserves so the more reckless banks will not be exposed to bank runs.  In other words set the reserve requirement at the same level for all banks to get equally leveraged.

4.  Get taxpayers to bail out banks when they fail.

5.  Convince the public it is in their best interest to have a central bank.

Even with a central bank if the TBTF were allowed to fail then this would not be a issue but when JP Morgan, GS, and the other old world banks are going under you saw the results in 2008.

 

lightning's picture

Not sure exactly what your point is.  I was merely pointing out that Glass-Stegall played a role - and yes a significant role - in the financial crisis.  In no way am I trying to minimize the role the Fed, fractional reserve banking, or fiat currency has played in the current financial crisis.  As to a few specifics in your post, the mergers of banks has been alarming.  Although not solely responsible for it, Glass-Stegall facilitated this acceleration quite a bit.  However, TBTF became an issue due to CDS and derivatives and the fact that conventional banking was co-mingled with the banks own speculation.  Breaking up the big banks won't solve the problem.  Why?  Because it will simply be another bank who steps up to the plate and begins the process of mergers, acquisitions, etc. and become the new TBTF.  We need to address the root causes of our financial problems.  These roots are plentiful, and if not killed, another plant will grow in the place of the one you knock down.

Escapeclaws's picture

Great post! The whole securitization enterprise was dressed up in mathematics that very few have the intellectual wherewithal to understand, like so many scams. From Wikipedia:

David X. Li (born in China in the 1960s as Chinese: ???; pinyin: L? Xiánglín[1]) is a quantitative analyst and a qualified actuary who in the early 2000s pioneered the use of Gaussian copula models for the pricing of collateralized debt obligations (CDOs).[2][3] The Financial Times called him "the world’s most influential actuary,"[1] while in the aftermath of the Global financial crisis of 2008–2009, to which Li's model has been credited partly to blame,[1][2] his model has been called a "recipe for disaster".[2]

Without this patina of scientific rigor, the whole enterprise might never have taken flight. See this excellent and readable article from Wired on David X Li and Credit Default Swaps: http://www.wired.com/techbiz/it/magazine/17-03/wp_quant

Li is a perfect example of how the frontal-cortex-challenged elites hire "talent" to do their bidding. These "stars" provide the necessary window-dressing for Wall Street's dirty business, both by their personal prestige and by their product. He gave the craven rating agencies, S&P's, Moody's, and Fitch, an easy out for avoiding their fiduciary responsibility, which was undoubtedly cynically used to generate fees. I would guess that it was their responsibility in particular to question the specious mathematics behind this and search through the historical data themselves to ascertain divergences from Li's model. They just had to know that this is bullshit--this idea of rating a parcel of low grade securities Triple A. At the same time, ignorant people--a specialty of our education system--are capable of believing anything that is dressed up in fancy mathematics; they may hate mathematics themselves, having avoided actually having to learn any mathematics above barely-assimilated calculus--kind of like a painful kidney stone for them--which only makes them greater suckers for this kind of flim-flam. Of course, the whole American approach to regulation is to let private concerns police themselves, avoiding conflicts of interest be damned. Clearly the "market" did not do its job in this case. I hope one day that Americans will realize the front and center fraudulent role of the rating agencies in this crisis.

Addendum: It strikes me in reading that article, which also quotes Nassim Taleb, that the essence of what went wrong was not discerned by the author of the article and possibly by Taleb himself. Essentially, what may have happened is that the prices of CDS, which were used in lieu of actual historical data of defaults to create the so-called gamma correlation constant, became themselves dependent on that constant's role in the copula function. Thus a feedback loop was created, which leads to resonance, like putting a microphone up to a speaker. Both the article and Taleb failed to point out the dynamical nature of this phenomenon. It seems to me that Li must have known this, so unlike the author of the article, I do believe he has to answer for the resulting disaster that was created. Perhaps that is what he had in mind in a sort of double entendre when he claimed that Wall St misunderstood his equation. Maybe Li is back in China laughing at the destruction he unleashed in the West, a brilliant application of using your enemy's weaknesses against him à la Art of War of Sun Zu.

You see, lack of virtue is weakness.

derryb's picture

While the FED is at the heart of most economic problems, Glass-Steagall did in fact prevent banks from foolishly gambling with the funds created out of fractional lending. Repeal of Glass-Steagall was important to the gamblers in that it completed their plan and enabled them to take advantage of their fractional lending. Its importance is best demonstrated by the expense and effort put into removing it. The Glass-Steagall repeal has everything to do with the scope of a financial crisis as demonstrated in 2008 vs. the contained LTCM blowup under the watch of Glass-Steagall.

Enforcement of regulatory controls protects the depositor, the investor and the taxpayer. Removal of the regulations, the enforcement of regulations, or as is now the case, both, will result in our current economic malise, regardless of the FEDs involvement.

Escapeclaws's picture

Terrific Website, PlanBEconomics. I watched the film at that website by Aaron Russo on America becoming fascist. It neatly ties together the Federal Income Tax, The Federal Reserve, and the evolving NWO. I found the film quite shocking. There was an unforgetable episode where a man orders a pizza--you wouldn't believe it could get that bad. If this is just propaganda, then Russo is an expert, and I confess I do have reservations that it could just be paranoia, but it will definitely make you lose sleep, if nothing else.

Now, because I don't care what people think of the messenger delivering this message, I will give the solution to what is happening in the world: The Pope must consecrate Russia to the Immaculate Heart of Mary. When things get really bad for all of us, people will realize this, but by then it will be too late.

dumpster's picture

sandy is leading a charge to break up banks and destroy all evidence of criminal behavior.. Like Enron break up the banks shred all evidence and the top crooks are off the hook.

No change in behavior just getting the folks use to the break up the looting banks .

and destroy all the old records and i repeat my self

 

 

rayduh4life's picture

Anyone here not think Kenny Lay is hanging on a beach in the carribean laughing?

CompassionateFascist's picture

Kenny is lying under a house in L.A., and he don't smell too good.

WillyGroper's picture

>>>>>>>>We should let these guys denounce the evil doers. 

 

Words mean jack, it's actions that count. Nice gold bracelet SW has on, wouldn't you say?

Rainman's picture

Phil Gramm's out on defense too...these ' didn't happen on my watch ' snakes are squirming as the fire gets closer and hotter.

macholatte's picture

 

If he wants to be taken seriously he should match every dollar he spent trying to get Glass-Steagall repealed with new lobbying funds to reimpose a separation between banks that accept deposits and the shadow banking and derivatives casinos.

 

And that would be about $300M in Clinton dollars = $4 Gazillion Obama dollars

 

A chronology tracing the life of the Glass-Steagall Act, from its passage in 1933 to its death throes in the 1990s, and how Citigroup's Sandy Weill dealt the coup de grâce.

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.ht...

 

 

CompassionateFascist's picture

What's needed is a complete separation of Organized Jewry (e.g., Sandy Weill) from government, finance, and law. And the liquidation of all Shabbatz Goyim (e.g., Phil Gramm).

fourchan's picture

he may as well said "i fucked up, thanks for the billion".

The Big Ching-aso's picture

 

 

All of a sudden years later he's contrite.   Before that he was living large, uncontrite, and out of the limelite.  WTF. 

Thomas's picture

He has donated over a $1 billion to non-profits. Obviously, he did well, but also he has not hoarded it.

overmedicatedundersexed's picture

hey thommy boy, I guess he did not take the tax write offs for the donations, or the expenses, the big dinners and awards the stering of money to friends pet projects..well too fine a point on it sorry.

overmedicatedundersexed's picture

those that try to justify this guy by posting how he can change, he was so giving ,,don't they remind you of RENFRO the servant of Dracula?

WillyGroper's picture

might want to look into some of those so called non-profits & check out the administrative costs. it's circular.

Anusocracy's picture

Separation of all sociopaths will do.

In one of Arthur C. Clarke's novels, he offered an interesting way to select the President.

They screened the population for all those that were qualified and capable of being President. Then they eliminated all those that wanted to be President and had a computer randomly select one of the remaining as President.

Very likely to be better than the current choices.

JOYFUL's picture

Kaboom....

double dose of truth-tellin...just the antidote for the the past three days' disinfo extravaganza courtesy of the moneypowers' local franchisee, Komrade George....who now reads us bedtime stories from his kozy nest full of 'top' ekonomists' 'bottom' banksters, and 'two way' truth torturers.

Aziz has nailed this sucka...and yes, it's the complicit goy sidekicks who deserve the most kontempt....the Weills et al are merely [dual]citiizens of convenience*...the Gramm's are sellout traitors to their own peeples!

*never forget, the dualies are also only 'jews' of convenience....kryptos hidin behind a sympathy-ploy sio-scam that will throw 'real jews' under the bus with the rest when the time is ripe! First step in freeing Merika from it's folly...handing in of ALL israeli passports!

pods's picture

I think that comes from his Irish roots.

pods

AGuy's picture

"The hypocrisy of Sandy Weill knows no bounds."

I see no hypocrisy if your follow the money. Weill just has an angle to profit from the break up the big banks. It does matter if its right, wrong, left, right, top, bottom. All that matter is there is a way to profit from changes in the law.

 

 

escargot's picture

Are you saying it does matter or it doesn't matter?  I hate to be a spelling snob, dude, but Jesus...

 

BeetleBailey's picture

Sandy Weill: The modern day Joe Valachi (kinda)......only with a shitload more money.

 

 

AetosAeros's picture

OR, now bear with me now, instead of him spending every dollar to put the horse back in the stable; he should spend every dollar to make sure all his creditors are whole, then....... and it's a leap...........

Go to Wall Street and JUMP!!

fonzannoon's picture

Great post. That look on Geithners face at 4.40 mins in is tremendous.

Daily Bail's picture

Thanks.  I had to go back and watch that part again.  He looks severely constipated.

fonzannoon's picture

At some point one of thes guys (Geithener etc.) are going to pull a "you want me on that wall" response out of frustration and all of the sudden the world will see them completely naked.

Yen Cross's picture

  +1  Thanks for teaching me, "a thing or two" , last week.

Debt-Is-Not-Money's picture

I think it was Albert Einstein that said; The government can issue money directly, why does it need a middleman (the Fed).

Obviously the Fed "needs" the government like a termite needs wood. What it has left is a hollowed out structure with no substance that will be destroyed by a gentle breeze.

machineh's picture

'Weill was the guy who — above anyone else — was responsible for the damage done.'

He ran a close race with Al 'Magoo' Greenspan, America's most notorious second-rate economist.

But history will decide the winner of their deadweight-loss economic destruction derby.

Gentlemen -- reverse your engines!

WillyGroper's picture

>>>>>>>Al 'Magoo' Greenspan

+10  roflmao

Zero Govt's picture

well we have 2,400 regulations, most of them broken... why not throw 1 more (Glass Steagal) on the steaming junkyard of the bloody useless (ie. the entire legal system)

for all those predesposed to rearranging the deckchairs before setting the Titanic on the exact same course, please jump aboard the legal system with another new Law/Rule

the legal system is a complete farce, an expensive joke, a total failure (hundreds of years of failure as evidence M'Lord)

your icy dip is 100% assured

Aziz's picture

Getting rid of Glass-Steagall definitely meant more and more complex regulation. Glass-Steagall was relatively simple and comprehensible and took a long time to loophole and even longer to gut. Everything since — Gramm-Leach-Bliley and especially the absurd 2400-page Dodd-Frank (Glass-Steagall was 37 page) has been complex, messy and much easier to game. 

Seems pretty clear to me: a few simple regulations worked reasonably well, a lot complex regulations made things much worse.

After our icy dip I hope we get back to a very few simple, clear regulations.