Why Do We Keep Swooning Over Failed Bankers?
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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.
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