Seeking Alpha
Profile| Send Message|
( followers)  

John S. Reed, who was CEO of Citicorp for 14 years before the 1998 merger with Travelers (NYSE:TRV) and then co-CEO of Citigroup (NYSE:C) with Sandy Weill until Reed's retirement in 2000, says he was wrong. A Bloomberg (here) article by Bob Ivry quotes Reed.

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 has the same opinion that a number of others, including SA contributor Simon Johnson and this writer, have expressed repeatedly.

Congress’ overhaul of U.S. financial regulations should include ordering banks to hold more capital, ensuring executives’ compensation is aligned with long-term profitability and banning firms that take deposits from also engaging in equities and fixed-income trading, Reed said.

“I would compartmentalize the industry for the same reason you compartmentalize ships,” Reed said in the interview in his office on Park Avenue in New York. “If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity.”

Reed made a pile of money before he retired (documented in the Bloomberg article), and I expect he has a handsome retirement package. But he definitely has second thoughts about what he did to make that money. He may be criticized for what he did, but wouldn't it be nice if others who have created the financial monster would also at least apologize? Instead, most are in a state of denial. And a few are speaking from church pulpits to proclaim the righteousness of their mission in the eyes of God (discussed here).

What a spectrum of spectacle. If the meek shall inherit the earth it may be after the strong have plundered it. Or maybe not. Free enterprise may yet be reestablished in spite of the fact that we are not moving that way yet. It will take years to restructure to a financial system that has checks and balances resulting from competitive forces, where bad decisions can result in failure and wealth is accumulated through sustained economic contributions rather than quarterly and annual gambling with loaded dice. It will take years because we can not afford the shock of collapsing everything and starting over. We don't have enough people who know how to grow their own food, spin their own yarn, make their own clothes and scavenge for heating materials. Such activity would make for very fit survivors, but that would not be the best way to solve our national obesity problem.

Hat tip to Barry Ritholtz at The Big Picture (here).

Source: Former Citi CEO John S. Reed: Mea Culpa