Financial economist Ed Yardeni, in his note to clients today, says Citigroup founder Sandy Weill isn't the only contributor to the U.S. bank blow-up to have second thoughts about the wisdom of mashing high-risk securities traders and investment bankers with sober commercial and consumer loan-and-deposit companies.
Weill, who had the support of then-President Clinton and Fed chief Alan Greenspan, Sen. Phil Gramm and his ally Republicans along with Democrats like current Vice President Joe Biden, ex-Treasury Secretaries Larry Summers and Bob Rubin, and other Washington enablers, now finds himself on the side of big-bank critics like FDIC boss Sheila Bair, ex-Fed chief Paul Volcker, and Neil Barofsky, former Special Inspector General for the TARP bank-bailout program, who has written a book about banking collaborators in government. called, appropriately, Bailout.
Weill isn't the first Great Big Bank backer to recant, Yardeni notes.
Ex-Fed head Alan Greenspan in October 2008 told Congress he was "in a state of shocked disbelief" to learn that giant banks' "self-interest" had failed to prevent them from putting personal greed in favor of financial stability.
Goldman Sachs boss (still!) Lloyd Blankfein wrote in the Finanical Times in February 2009 that "every financial institution" that, like his, traded mortgage-backed bonds shares responsibility for the market's blow-up and collapse.
Yardeni wants Treasury Secretary Tim Geithner to be the next to admit he was wrong -- for continuing to use Libor to be the financial benchmark for U.S. government assets even after he knew, in 2008, that the supposed credit market benchmark number was artificially cooked in bankers' favor.
Yardeni, no friend of big government, finds the whole mess a blow for strict, clear government regulation of banking: “The problem with banks is that they tend to blow up on a regular basis. That’s because bankers are playing with other people’s money (OPM). They consistently abuse the privilege and shirk their fiduciary responsibilities. Whenever they get into trouble, government regulators scramble to bail them out first and then to regulate them more strictly. Without fail, the bankers respond to tougher rules by using some of the OPM to hire financial engineers and political lobbyists to figure out ways around the new regulations.
“In my opinion, banks are the Achilles’ Heel of capitalism. They really do need to be regulated like utilities if their liabilities are either explicitly or implicitly guaranteed by the government, i.e., by taxpayers. Banks should be permitted to earn a very low utility-like stable return. Bankers should receive compensation in the middle of the pay scale for government employees, somewhere between the pay of a postal worker and the head of the FDIC. It should be the capital markets, hedge funds, and private equity investors that provide credit to risky borrowers instead of the banks.”