An Architect of the Crisis Recants–Sort of

I hope you weren’t sipping your morning coffee when you were watching CNBC’s “Squawk Box” Wednesday morning, because if you were you probably spilled it all over your pajamas.

There on live television was Sandy Weill, former chairman and CEO of Citigroup and a pioneer of the “financial supermarket” which he engineered twice—first, with Shearson American Express in the 1980s and then with Citi, which he painstakingly assembled into one of the greatest financial empires in US history.

But on “Squawk Box,” Weill, who had been adamant about his own lack of responsibility for the financial crisis, essentially repudiated his life’s work, and called for big banks to be broken up. It was like Alan Greenspan on the road to Damascus, when the former Federal Reserve chairman threw his mentor Ayn Rand under the bus at a 2008 congressional hearing.

“I think the problem that was created was created by too much concentration in investments in the banking system, way too much leverage, very little transparency with lots of off- balance sheet things,” Weill said on CNBC. Then he delivered the coup de grace:

So, I think what we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks maybe [make] commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.

An astonished Becky Quick asked him. “That’s a pretty radical idea, breaking up investment banks and banks. Are you suggesting going back and really breaking these companies up? “

Former Citigroup CEO Sandy Weill on CNBC’s “Squawk Box.”

Replied Weill:

That’s exactly what I’m suggesting…I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable…

I think the world changes and the world we live in now is different from the one we lived in ten years ago.

Unlike his former Citi co-CEO John Reed, Weill hasn’t been introspective about his own role in creating the problems, and the hosts didn’t press him on this. “I have to say, I’m blown away,” Andrew Ross Sorkin declared.

Citigroup and a couple of other banks—primarily NCNB/NationsBank, which became Bank of America—spent decades whittling down the Depression- era Glass-Steagall Act that had included many of the protections Weill said should be restored.

Later that day CNBC caught up with former FDIC chairman Sheila Bair, a capable regulator whose former agency actually shuts failed banks. She said she was “flabbergasted” by Weill’s comments.

It’s a little ironic, I must say, given the fact he and his institution were in the lead in pushing for the repeal of Glass-Steagall and then, of course, Citigroup is a poster child for “too big to fail” in the bailouts during the 2008 crisis…But obviously I agree with him.

Of course, Weill was assisted in his efforts to dismantle regulation by Alan Greenspan, Sen. Phil Gramm and President Clinton’s Treasury Secretary Bob Rubin, who was hired by Citi after he left government and collected $100 million in compensation during his tenure there. (Gramm serves as vice chairman of UBS, the Swiss bank that is a poster child for bad behavior by banks.)

Neither Gramm nor Rubin has shown similar public contrition for their roles—nor have Rep. Barney Frank and former Sen. Chris Dodd for their efforts to prop up Fannie Mae and Freddie Mac.

Isn’t it curious how business people like Weill can evolve and take some responsibility, while being a public official means you never have to say you’re sorry?

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