You wouldn’t say? John Reed hits it right on the head and he has creditability so I hope our representatives are listening to people like him and Paul Volcker who keep making the case for reenacting this beautiful piece of legislation. It makes perfect sense to have your most risk adverse financial institutions (commercial banks) should not be involved in the most risky activity like trading on your own books which investment banks engage in daily.
The argument I hear from the banks is that it is very profitable so that is good for the shareholders. I respond,”then convert to a investment bank and divest your commercial banking activities”. When we are dealing with “Too Big to Fail” banks we are inviting trouble to our doorstep by allowing this activity. It puts depositors and the FDIC at risk if one of these banks failed but as we have shown, we will instead bailout their bad decisions and that puts the taxpayers at risk. This form of financial welfare as got to stop and market forces need to be given a chance to bear on these situations.
Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.
“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities. “When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”
Reed headed Citicorp for 14 years until the merger with Travelers. The deal created the world’s biggest financial company in a stock swap valued at about $85 billion. Reed and Weill were co-chairmen and co-chief executive officers until Reed’s retirement in 2000.
Analysis: Glass-Steagall needs to make a comeback so we can reduce the systematic risk in our financial system. OTC derivatives reform is another area that will greatly help us address these issues we face.