Wall Street banking and the chutzpah of Sandy Weill

Former Citigroup chair: Really big banks are bad. Huh?

WASHINGTON, July 25, 2012 – After yesterday’s miserable trading marked a trifecta of lousy days on Wall Street, the market looks to take a nice breather this morning if futures are any indication. That seems to be the pattern these days. A few days of irrational exuberance to draw in the unwary. A 3-5 day smackdown for the short to collect outsize tolls as the suckers exit in a panic. Then rinse-repeat in spite of whatever evidence is on the table. We’re likely to get the up part of this game this morning, although bullish phases seem to be growing shorter and shorter.

The news is actually not good this morning at all. The Euro mess is still not one millimeter closer to resolution. Assad and his Alawite minority are determined to remain in power even if they have to kill most of their fellow countrymen to do so whilst threatening international do-gooders with chemical weapons should they lift a finger to fight his regime. (And just where did they get all those chemical weapons, hmm?)

And worst of all, the sainted Apple exhibited a chink of mortality after yesterday’s close, reporting “disappointing” earnings and guidance, even though those disappointments would look like massive victories to most other companies. The market seemed shocked—shocked—that Apple’s numbers, which amounted to a significant increase over the same quarter in 2011, should not beat estimates, defying what has been obvious for months to anyone paying attention; namely that the U.S. economy, which has never really recovered from 2008, is slipping further back into the tank.

The poster boy for this kind of Ostrich Nation is none other than Barack Obama, the president of hope and change. He proclaimed yesterday on the stump that his nearly 4-year old regime has been a “success,” even as the market continues to tank, Europe continues to founder and flounder, and the Middle East, as usual, continues to be a hotbed of murder and mayhem.

What tune will today’s Neros fiddle today while the world economy burns?

For the president, it would seem that “success,” like everything else in this country, has been redefined over the last four years to include things like increasing citizen dependency on the Federal government for survival; subsidization of nonexistent industries that will never create any meaningful or lasting employment; squashing this nation’s own cheap and increasingly abundant sources of fuel in favor of impoverishing Americans with massive energy bills; nationalizing health care while lacking the money to pay for it; and making America a laughingstock among its enemies. If these are the standards against which the president is measuring his “success,” well then, we’d guess he’s right. But since he’s proved his point, perhaps he should call his success by its real name: socialism. You know, that wildly “successful” system that’s currently driving all that “success” we see over in Europe.

Increasingly, the president reminds us of the ancient Roman empire Nero who, allegedly, fiddled while Rome burned—part of Nero’s executive decision to undertake massive urban renewal in his capital city. Obama has never indulged in pyrotechnics to prove his point. But his peculiarly Marxist flavor of hope and change seems to be causing as much damage here, at least beneath the surface.

Oddly, though, the greater dunce today, Obama and Nanny Bloomberg aside, would appear to be that blast from the past, none other than former Citigroup chair and CEO Sandy Weill. Like former Unisys CEO and former Carter administration official Mike Blumenthal—who conglomerated that company beyond recognition before pillaging its treasury (legally) and running off to Switzerland for a swell retirement—Weill is the fiscal-testosterone-driven dude who grew Citi massively into his vision of a “financial supermarket,” creating the very model of the “too big to fail” institution.

To make a long history short, during the 1980s and 1990s, Weill managed to exploit firms like American Express, the old Shearson brokerage, Control Data, Gulf Insurance, Primerica, the Travelers, and Drexel Burnham Lambert, and Salomon Brothers before uniting remaining assets together under the Citicorp (now Citigroup) banner.

To keep the mess together, Weill became one of the driving forces that pushed the Republican Congress and the Clinton administration—unlikely allies—to trash the remaining vestiges of the Glass-Steagall Act. Glass-Steagall was the Depression Era law that erected a firewall between banks and other financial businesses, most notably insurance and investment banking (i.e., trading). It was this type of institution that was arguably behind much of the Wall Street shenanigans during the 1920s and, significantly, most of that kind of nonsense stopped after Glass-Steagall went into effect.

Weill felt that his path to riches was to tear down those barriers and get his bank—and any others who wanted to join in the fun—back to the 1920s again. And it was a swell idea. For them. Problem is, we’ve been paying for that swell idea since roughly 2007, and there’s no end in sight.

Meanwhile after having to spin off Travelers from Citi, Weill eventually lost favor with stockholders and employees, largely the result of fallout from the market mess that occurred after the dot-bomb, 1999-2000. He left Citi in late 2003 with the usual massive severance package. Not long after, the company’s worldwide megastructure exhibited signs of distress and Citi ultimately had to be bailed out by TARP. To this day, it has yet to complete its necessary restructuring and downsizing and remains a consistently poor investment.

Fast-forward to today, July 25, 2012. In an interview on CNBC, Weill is now calling, effectively, for a return to the law he helped to bury.

“’What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,’ Weill told CNBC’s ‘Squawk Box.’”

Hey, how’s that for chutzpah? I’ve made my pile, so now you suckers can’t make yours! Reminds us of that old comic character, Nervy Nat, dating from the early 1900s. Nat never bothered to parse out his own lengthy history of hypocrisy. He seems to have been an inadvertent role model for the likes of Sandy Weill.

Arguably, the newish, hydra-headed Dodd-Frankenstein Law now replaces the dead Glass-Steagall. But really it doesn’t. It still leaves the “too big to fail” concept etched in stone. Glass-Steagall—unlike most of today’s politically advantageous, loophole-ridden laws that favor campaign contributors to the Democrats (like the big banks)—was simple, clear, and straightforward, even though it was written by Democrats. After its implementation, the law kept banking reasonably clean for generations until politicians began chipping away at its protections, dating from roughly the mid-1980s.

Panel from an old Nervy Nat cartoon, circa 1900.

Now Sandy Weill is back sanctimoniously recommending the return of the highly useful old law he helped to sack. Who’s he trying to impress with this kind of retro-wisdom. Why didn’t he leave Glass-Steagall alone in the 1990s? What game is he trying to play now? Is he looking to pick up assets cheaply if the mega-banks are forced, once again, to split up? Who knows? But it’s well worth keeping an eye peeled.

Weill is typical of the kind of wealthy Wall Street socialist who preaches egalitarian virtue while undermining it with his every move to preserve his own financial hegemony. Such people are the direct cause of our continuing misery in this country, just as their counterparts over in Europe are guilty of the same.

But sadly, the problem is too complex for the average voter-taxpayer to grasp. But grasp it we must. So today, we call out Sandy Weill for his brazen chutzpah, and remind you what he did to the banking system the last time he proclaimed his wisdom.

But enough of today’s rant. The market has just opened, and at roughly 9:42 a.m. EDT, it’s up a big 42 Dow points. We’ll need that number times 10 or more just to get back above where we were just a week ago, so let’s not rejoice too soon. Maybe a better idea is to use this oversold short-squeeze—which may be of limited duration—to get out of a few more positions that may prove unstable as Europe and the U.S. continue to fiddle while the world economy burns.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17

 


This article is the copyrighted property of the writer and Communities @ WashingtonTimes.com. Written permission must be obtained before reprint in online or print media. REPRINTING TWTC CONTENT WITHOUT PERMISSION AND/OR PAYMENT IS THEFT AND PUNISHABLE BY LAW.

More from Market Maven
 
blog comments powered by Disqus
Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

Contact Terry Ponick

Error

Please enable pop-ups to use this feature, don't worry you can always turn them off later.

Question of the Day
Featured
Photo Galleries
Popular Threads
Powered by Disqus