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Why Do We Keep Swooning Over Failed Bankers?

Note: The Trade is not subject to our Creative Commons license.

Like a defecting Syrian colonel or converted climate-change denier, Sanford I. Weill has been heartily welcomed among those on the right side of history.

The sheer inappropriateness of the vessel, the breathtaking audacity of the messenger, can oddly confer authority on an idea. If even the creator of Citigroup now believes that the giant banks should be broken up, who could not believe it?

His belated conversion is only the latest from the corner-office-to-Zuccotti-Park banking crowd. The former merger aficionado Philip J. Purcell, who headed up the pithily named Morgan Stanley Dean Witter Discover, wrote a recent Wall Street Journal opinion article suggesting that shareholders should break up the banks. Sallie Krawcheck, a former top-ranking Wall Street executive, recently criticized big banks. Two other former top executives, David H. Komansky and John S. Reed, have attacked the current financial system.

These converts tend to have followed a similar path. They participated in the merger frenzy and pushed deregulation when the getting was good. They departed from finance's sweet embrace sometimes involuntarily, ousted in power struggles. And they stayed quiet, or did little, throughout the debates on how to fix the system when the nation was struggling over the Dodd-Frank financial regulatory overhaul.

That's when it would have mattered.

Those who are left defending the banking status quo are on an island. These are current bank executives — who can be counted on to change their views the instant they lose out in the corporate race and are booted from the organization with engorged severance packages — and the politicians and lobbyists who love them.

And so what? Supporters of change can win all the intellectual arguments they want; the structure of the financial system remains intact.

As every frustrated American knows, no major banking executive has gone to prison or has been fined any significant amount in the aftermath of the financial crisis.

But what's astonishing is that Wall Street bankers seem not to have paid any social cost either. They sit on corporate and nonprofit boards and attend functions and galas. They remain top Wall Street executives, or even serve as regulators. The nation's prominent op-ed pages, talk shows and conferences seek their opinions. If you are rich, you must be intelligent. Your views must be worthwhile, never mind the track record.

The embrace of Mr. Weill sets a new standard for reputation rehabilitation.

Some disagree that he played a central role in creating the modern financial system that blew up the world economy. Perhaps. But these people must concede that he failed on his own terms as a businessman.

Sandy Weill was a deal maker who aspired to more. He had a vision to create a financial supermarket. The scrappy public school graduate from the streets of Bensonhurst in Brooklyn realized his dream and created Citigroup.

And it didn't work.

Mr. Weill's only unambiguous success was to make himself enormously rich.

By the mid-2000s, Citigroup was a flop. The business synergies never materialized and the stock was lagging. Its chief executive then, Charles O. Prince, was divesting divisions. In 2007, investors and analysts called for the very sort of breakup that Mr. Weill now endorses. Then the financial crisis hit and the government had to bail out the behemoth Mr. Weill created.

His institution had also served as a (unheeded) harbinger of the banking rot to come. Throughout the 2000s, Citigroup was riddled with scandal. It settled with the Federal Trade Commission over deceptive practices. Its CitiFinancial unit was embroiled in predatory lending controversies before it was fashionable. The bank was an entwined backer of both Enron and WorldCom. Citigroup employed Jack Grubman, who was at the heart of the research conflict-of-interest scandals of the early 2000s. Even back in his less reflective days, Mr. Weill had to apologize for that.

Things got so bad that the otherwise somnolent Federal Reserve actually banned Citi from making any more acquisitions while it sorted out its mess.

What's a guy gotta do around here to lose a little credibility?

Our society wasn't always this way. In Edith Wharton's novel “The Age of Innocence,” set in the 1870s, the arriviste Julius Beaufort's bank fails (it appears not to be fraud, just recklessness). Mr. Beaufort is banished from New York society for a generation.

After the crash of 1929 and the Great Depression, major Wall Street figures populated prisons, not presidential advisory panels. The head of the New York Stock Exchange, Richard Whitney, who hailed from one of the most patrician families in America, went to Sing Sing for embezzlement.

In 1936, Roosevelt gave his famous speech listing reckless banking and speculation among the "enemies of peace." These enemies hated him and he asserted, “I welcome their hatred.”

It wasn't just rhetoric. F.D.R.'s appointees “were neither impressed by, nor subservient to, bankers,” said Eric Rauchway, a historian from the University of California, Davis. Roosevelt appointed people like William O. Douglas, the future Supreme Court justice, as head of the Securities and Exchange Commission. He threatened to nationalize the stock exchange.

No such situation for us today. Our meager lot is to celebrate when these guys change their minds.

“Mr. Weill’s only unambiguous success was to make himself enormously rich. “

I think this sums up the answer to the question the article poses and shows what’s really going on.

Specifically, I’m no expert, but I’d have to guess that Weill only made himself rich because that was his goal.  It’s impossible to ONLY get rich and fail to do anything else, if you have any other goal.  Feed the homeless?  Make other people rich?  Prevent economic collapse?  Heck, raise and sell baby unicorns?  If you profit and things like that don’t happen, you’re not being honest about your goal.

Now, let’s look forward a little.  Why are so many bankers jumping ship?  The same reason a tick jumps off a dead dog:  There’s no blood left to suck.

Why jump on the “break up the mega-banks” bandwagon?  Because it gives them an opportunity to start the cycle over.  Divest yourself of your banking holdings, wait for the diaspora, then grab onto the fragments and start building a new empire.

Richard Ordowich

Aug. 1, 2012, 1:06 p.m.

Simple Solutions for Complex Problems

The problems of the financial industry are complex and systemic. Solutions like breaking up the banks are overly simplistic just like the integration of banks and other services were previously.

However, each of these change gyrations creates wealth for some; investment banks, investors and senior executives. Mergers, divestitures etc. It’s like stamping a label on a product “new and improved”, without changing the contents. What’s new and improved is the label.

The new label drives up perceived market value. Now the parts are worth more than the whole. People perceive value and drive up the price of the stock. That in itself creates wealth for some again. Perhaps banks are really just a product to buy and sell. They don’t produce anything.

Diane Freaney

Aug. 1, 2012, 1:20 p.m.

I think it takes tremendous courage to say “I screwed up,” particularly in this litigious world.  I would use this an as opportunity to ask Sandy Weill’s support for more change at the big banks.  Ask Weill and others on the list of convertes to publicly issue and sign a letter to current bank CEOs advising on actions to take.  This is my own list -

1. Voluntarily stop issuing stock options
2. Let all issued stock options “sunset” and encourage top executives to voluntarily cancel their own outstanding stock options.
3. Cap executive salaries at the salary of the President of the United States
4. Develop a new strategic plan to break up the banks into pre Glass-Steagall units

Make the list public, put it on Facebook and other media and encourage debate.  Actively listen to comments and hold the CEOs accountable to their stakeholders. 

Give Sandy Weill et al a chance to show real leadership and help change the system.

Scott de Kuyper

Aug. 1, 2012, 1:37 p.m.

I share Mr. Eisingers sentiments about not holding up Mr Weill as a good or righteous stalwart of American values and ethics.  Nonetheless I know of no one who is “embracing” the new, improved Mr. Weill in any context other than that of a bad crook gone good.  Personally I think they should all be in jail. But knowing Mr. Weill, a central figure in crushing The American Dream is now on the right side of the argument is gratifying to say the least.  The paucity of honest American business leaders out there is stunning.  We need all the help we can get in righting this ship.  If it comes from the King of Pirates then I say all the better.  It doesn’t mean I admire him.

Anne Sherwood

Aug. 1, 2012, 1:37 p.m.

Both comments below leave out two significant things.  One: the Glass Stegall Act prevented the forces of greed for over 60 years from causing the economic world melt down we have recently experienced.  It needs to be re-instated ASAP because the Dodd Frank Act will do very little from preventing it happening again. 

Two:  Those responsible for taking risk that put the entire market and banking system at risk should be prosecuted to the fullest extent of the law.

All the rhetoric in the world will not prevent another economic calamity until those two objectives are met.  We may not be able to erase greed, but we can certainly put up barriers to contain it and punish those who over step those barriers.

We, the general public, don’t ’ swoon’ over banks failing. Those that swoon over banks failing are rich Republicans, and foreigners with money invested in those banks, or the so called news media ( propaganda sources ) that are, and will, be owned, and operated by members of the Republican Party which is glad to ’ bail them out ’ with ’ no strings ’ in the event they bilk the nation out of hundreds of billions of dollars. Bush… not Obama ( Obama did at least put some strings on ) set that crap up last time around. I suppose now it is time to start to do it again.

Mr. Weill strikes me as a pretty slick customer. Got to give to a guy who waits to get to the other side of the river before changing horses. Financially, I do envy these guy. Morally, I sure wouldn’t to be in his shoes on Judgement day.

The banksters who have “seen the light” and the “error of their ways” did the same thing when they got Glass-Steagal repealed.  They rolled over and played dead and got up and ripped off every country and every individual that ever had any banking business ever.  Fool me once shame on you, fool me twice, shame on me.  I say no mercy.  Arrest them, try them under RICO, confiscate all property they own, return that property to the US Treasury and to the People, throw them in jail, throw away the key.  May they end up the same way they tried to leave us….starving and broke!

I needed a moment to wait for by blood to stop boiling. Elaine R has said it all for me.  He had neither the banking industry at heart nor the people in it.  Only greed.

Doesn’t breaking up the uber banks have the advantage that stockholders now would have shares in multiple entities that are more manageable possibly more profitable and likely to have the same relationships but on a less formal structure with the other entities?
Is there any transparency created?
Does the FED return the bad securities they have taken off the books of the uber bank and left to the taxpayer to deal with to the entity that created the bad instrument?
Are we better off with someone who says my previous magical thinking was wrong?
This is much like tax reform.  Lets zero it out so we can make new corporate welfare programs.

Meanwhile, the four people who were found responsible for the billion dollar bank scandal in Iran just got the death sentence.  Here, we give them multi-million dollar retirement packages. 

http://in.reuters.com/article/2012/07/30/iran-fraud-idINL6E8IU8QM20120730

A Great spot on article! And great responses so far! We really do live in the land of celebrity and “no consequences” (for the one percenters) - which continue to be propped up by our clueless voters who profess to hate the bankers, but can’t manage to link that emotion to the fact that we possess the tool to fix what’s broken: through our votes. Simply elect well-educated, honest people who will work for our behalf by reinstating regulations and punishing those who commit fraud. Too many instead still buy into the repetitive corporate led, bumper-sticker quality, divisive and diversionary rhetoric that allowed deregulation and got us into this mess.

I’m allowed to change my mind also. I previously supported the bailout (not the free pass though) due to fears of a world wide economic collapse if we didn’t go ahead with it. I still believe that. But given that we continue to reward “business as usual” for those 1%‘er “masters of the universe” who caused this and are still doing very well, leaving declining jobs/opportunities/incomes for the rest of us, I think maybe we should have just let ‘er rip and planted our victory gardens. Started there, I could have gone back….and given our current momentum, we’ll all probably end up there anyway, just taking a slower route.

OK, Mr Weill and others didn’t speak up or help push through meaningful reform when they could have done so.

The only way I would consider Mr. Weill’s comments sincere is if he starts contributing very sizeable amounts to office holders and candidates who have in the past and contiune to work for meaningful reform.

Weill bought a home out in Sonoma County (Northern California) and received an honorary degree after a 12 Million gift to Sonoma State University.

The students arranged for a “Day of Shame” to protest this honorary degree on May 12, 2012.

A co-worker who attended the ceremony saw many students turn their backs toward the podium when Weill got his honorary degree.

Now in America, some family fortunes get “cleaned up” with the passage of time.  For example, per Wikipedia,  Walter “Annenberg was greatly affected by tax evasion charges and other scandals that involved his father in the 1930s. A significant part of his adult life was dedicated to rehabilitating the family’s name, through philanthropy and public service.”

And Joe Kennedy built some of his fortune on bootlegging and stock manipulation, as the next generation attempted to repair, with some famous miss-steps, the family name.

Perhaps Weill wants to exit this world with his name known for good works and doesn’t trust the next generation?

The real tragedy of the financial rescue is that the government didn’t downsize the financial sector.  If as Robert Sarnoff said, “Finance is the art of passing money from hand to hand until it finally disappears.”, the USA needs much smaller financial industry.

And I suspect I am not alone in suggesting the financial industry has done its primary job, capital allocation, monumentally poorly, as evidenced by the internet bubble and housing bubble, all in the last 12 years.

Some people have suggested 50% to 33% of the current size is appropriate, which implies a lot of Americans are employed doing unproductive financial tasks.

To no surprise, G.W. Bush catered to the financial industry, but Obama continues the deferential treatment.

I believe history will treat Obama harshly about his missed reform opportunity.

And yes, it is sad that Weill can grab headlines with his “breakup banks statement” as it was something that should have started in 2008 when people were angry at the banks and had the opportunity to nationalize them.

I’m worried that we’ve kicked the can down the road by postponing the reform.

And Sandy Weill will be able to claim “I told you so”.

If anyone is interested, Dean Baker has some comments about the financial rescue implementation at “More TARP Bashing” posted on 26 July, 2012.
See “http://www.cepr.net/index.php/blogs/beat-the-press/more-tarp-bashing”

Dean’s point is that claims of “second Great Depression” forcing the rescue was “crap”.

But a compliant Congress and Obama administration gave the industry what they wanted..

Gio Wiederhold

Aug. 2, 2012, 9:51 a.m.

Bankers and financial wizards have convinced us that only they can understand the complexity of finance.
Our, and the politicians’ problem is that we believe them.
Without transparency anything can be made to look difficult.

As long as we believe them we and our government will be fooled.

Gio

I will say the same thing as 4 years ago, the money spent bailing out the banks, corporations etc. should have/should be spent on infrastructure projects across the country. Our bridges, roads, water and sewer systems are failing. Those big projects create massive amounts of jobs for people that spend money AND pay taxes. Lower unemployment, raise manufacturing needs, and improve our infrastructure, increasing our transportation efficiency. That is a win win situation. Those people buy Fords and Chevy’s. Those people are America. The last bank bail out was supposed to keep the banks lending to businesses. That turned out to be a joke, I saw many mid level companies (5-10mill gross a year) go out of business for lack of their yearly operating capitol loans. One I know of intimately, was a good business with very low debt ratio on expensive equipment and had contracts in place for the year. The bank wanted high interest and insisted he put his high value personal property up as collateral for his loans. He shut the doors bought out his own contracts and retired. He is still enjoying a good retirement, but 50 employees scrambling for jobs, not to mention subcontracters and their employees. This was your money in motion from the banks. The money that starts in the pocket of the American worker ends up with the banks and the large corporations, the money that ends up in the rich mans pocket stays there.

Are investors backing off? So long as the Goldman Sachs brand and the JP Morgan brand are as popular as The Gap and Banana Republic nothing will change. Investing in speculative financial instruments is not investing in production or real life business; it is purely investing in a name brand. http://www.nytimes.com/2012/08/03/business/a-wells-fargo-security-goes-wrong-for-investors.html?ref=todayspaper

I read this article; what were the investors investing in?

Roosevelt, the picture of banking prudence. The man who extended the Great Depression by bowing to banksters & instituting ludicrous bank-favored policies like price fixing to hide their thievery.

This is your evidence of his anti-bank status, Jesse?

“He threatened to nationalize the stock exchange.”

How’d that work out?

Luckily, we now have Thomas J. Curry to help us put a stop to this nonsense and serve our interests, right?

Why are we so dumbstruck/impotent/forgiving in regards to the continuous banking scandals?

I believe it’s because the only alternative we see is socialism. Thanks to years of propaganda, we’re convinced that the system we have is a capitalist one, and anything else would thereby be anti-capitalist.
And, no one questions the capitalist “fact.”

In short, better dead than red or if you prefer, it’s “the devil we know.”

Good observation, Tracie.
Compromise is being unfaithful to your principles.
Ginsights

I don’t see that the alternative was presented as socialism. 

I see most governments are “conservative” in that they attempt to hold onto their power by preserving the current order. 

I’m unsure of the reasons that Obama selected advisors such as Geithner and Summers and ignored advice from Joseph Stiglitz/Paul Volker/Simon Johnson/Dean Baker/Paul Krugman.

At first glance it appears he wasted a great opportunity to reform the system and shrink the financial sector in the process.

The cynic in me suggests Obama did a “net present value” calculation on his actions and with an eye toward how well Bill Clinton (100million), Robert Rubin (200million, Citigroup) and George W. Bush (15million for speeches, so far) did in their lives after politics, and decided to avoid upsetting the established order.

I also believe the financial rescue resulted in a regional wealth transfer from the more industrial Midwest and entrepreneurial West Coast to the financial/political centers of the East Coast, but that won’t be mentioned in the Washington Post or the New York Times.

One thing that the media doesn’t seem to emphasize is a financial disaster is not the same as a natural disaster.  A financial disaster results in a paper wealth transfer, but a natural disaster destroys stuff that must be rebuilt. 

And a non-economist (Gertrude Stein) stated this well as “The money is always there, but the pockets change”.

While the housing bubble resulted in a terrible miss-allocation of capital toward housing units by the financial system, the time after bubble pop has been spent trying to find a way to shift the huge loss to the taxpayers and away from the bondholders/shareholders of the financial institutions and from financial reform.

In my view the USA must move toward a much smaller financial industry and military to prosper, perhaps 50% the size of both, but neither Obama or Romney will lead that way.

I wanted Obama to lead in financial reform via the SEC and the Justice Department, but instead by going with Mary Schapiro (SEC) and Eric Holder (Justice), Obama chose status quo.

I’ve heard people suggesting that if Romney gets elected, then things will get quickly bad enough that real reform will happen sooner, but Obama will only delay the day of reckoning.

So maybe there is a bitter upside to electing Romney.


.

Gio Wiederhold

Aug. 7, 2012, 7:36 a.m.

John Wright,
Great comment. I had not seen or recalled the Gertrude Stein quote- where is it published.

My take is that Obama just did not have enough self-confidence to break new ground.
I am also critical of the other advisors you mentioned. They are also steeped ion traditional financial models and ignore the disconnects that globalization, modern technologies, and corporate growth has created.

Ginsights

A little Googling shows the full quote:

“Money is always there but the pockets change; it is not in the same pockets after a change, and that is all there is to say about money.”

see http://www.brainyquote.com/quotes/quotes/g/gertrudest101947.html#OkLlTouT2osdjq8e.99

I understand your complaint about the other advisors, as one suspects their model of the world assumes the economic pie can grow forever.

Maybe a new generation of economists and politicians is needed to guide this increasingly resource/climate change constrained world.

Gio Wiederhold

Aug. 7, 2012, 10:32 a.m.

Thanks for pointer. John
The quote on writing right after in Gertude’s list is my approach.
I analyzed what is happening with globalization in the software industry
[Wiederhold, Gio: “Follow the Intellectual Property: How companies pay Programmers when they move the related IP rights to offshore taxhavens?”; Communications of the ACM, Vol.54 No.1, January 2011, pp.66-74].,  also on infolab.stanford.edu pub server ; but it was hard to put it all of the issue clearly into a paper subject to academic refereeing, so I am just about to ship a book to Springer: `Valuing Intellectual Capital’, addressing the part that 19th and 20th century economists miss.

clarence swinney

Aug. 7, 2012, 2:34 p.m.

c-b-o heaven on earth to hell on earth
CLINTON TO BUSH TO OBAMA
Who Dug the Deep Hole?  Who Fumbled the ball?
Numbers rounded

Clinton left Bush an 1800B Budget
Bush Left Obama a 3500 Budget

Clinton left Bush a 240B Surplus as far as the eye can see
Bush left Obama a 1400B Deficit as far as the eye can see

Clinton left Bush 5,700B of Debt
Bush left Obama 11,800B of Debt

Clinton left Bush a 237,000 net new jobs created per month
Bush left Obama a 31,000 lowest number since Hoover.

Clinton left Bush 17 Million Manufacturing Jobs
Bush left Obama 11 Million Manufacturing Jobs

Clinton left Bush a 10,800 Dow
Bush left Obama an 8028 Dow

Clinton left Bush Peace on Earth Good Will From Most Men
Bush left Obama Hell on Earth Two disastrous wars. Enmity of 1500 Million Muslims

Clinton left Bush a President most highly rated of any peacetime President in Asia, Africa, Europe.
Bush left Obama the most hated President in history
Bush left Obama an Housing Tsunami and Financial Volcano
Bush left Obama, in 2008, an 8500B Bail out commitment Yes! 8500 not just 700
Bush left Obama his Takeover of Fannie/Freddie, AIG, and first bailout of Chrysler
Bush increased maximum loan by Fannie/Freddie from $153,000 in 2000 to $300,000 then to $729,000
That is how F&F got stuck with so many toxic mortgages. Bush gift to Big Bank pals.
Bush increased FDIC maximum deposit coverage from $100,000 to $250,000. Help the rich.

Alessandro Machi

Aug. 8, 2012, 11:06 a.m.

Here is a proactive cause for consumers to consider, something we can get rolling on our own.

Debt Neutrality.  You can learn more about Debt Neutrality
at http://www.debtneutrality.blogspot.com/2012/08/what-is-debt-neutrality.html

and about the debt neutrality petition at http://www.change.org/petitions/congress-create-debt-neutrality-rights-for-paying-down-credit-cards-student-loans

Alessandro Machi

Aug. 8, 2012, 11:09 a.m.

Clarence Swinny wrote “Bush increased maximum loan by Fannie/Freddie from $153,000 in 2000 to $300,000 then to $729,000
That is how F&F got stuck with so many toxic mortgages. Bush gift to Big Bank pals. Bush increased FDIC maximum deposit coverage from $100,000 to $250,000. Help the rich.”  end quote.

I don’t think this is a fair statement to make.  The poor were getting left behind of the housing “boom” and unless loan limits were increased, they had no way of catching up, or so everyone thought.

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)