From the hysteria and hyperbole spreading throughout the news media the past few days you'd have thought we'd made contact with Martians, someone had found a cure for cancer, or maybe the Chicago Cubs had made it to the World Series. But no, it was only a financial services executive changing his mind -- specifically, former Citigroup CEO and notorious vanquisher of the Glass-Steagall rule Sandy Weill stating on CNBC that large banks probably should be broken up.
For some reason, the pundits are all "shocked, shocked!" that someone might draw from experience and observation to change one's mind. From all the chatter and analysis one would conclude that it is absolutely unthinkable that Sandy Weill -- a man who has demonstrated he is nothing if not practical, analytical and opportunistic -- could reverse his position on something he was adamant about at an earlier point in history. Weill is now being called everything from hypocritical to sinister to courageous. Even former Senator Christopher Dodd (the Dodd in Dodd-Frank) told CNBC that Weill's comments were like "Paul Bunyan becoming an ecologist."
Well, Weill may be all those things in a cosmic sense, but it may also be that he is just in touch with reality. Among the "earth-shaking" statements Weill made in his June 24 interview on CNBC’s Squawk Box show:
"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."
Many bankers don't want to hear that but it can't be denied that this is a safer, less-risky (though potentially less-profitable, as well) strategy. It also would be a significant sign of faith to a public that is completely disillusioned with the financial services industry -- something else that Weill acknowledged. "I want to see us be a leader, and what we’re doing now is not going to make us a leader," he said on CNBC.
Other critics would do well to explore the concept that, as Weill noted in the CNBC interview, the Gramm-Leach-Bliley legislation that replaced Glass-Steagall in 1999 was a response to a different financial services competitive world. It wasn't just about allowing commercial banks to be involved in investment banking. Looking to the generally successful bancassurance model in Europe, the idea was that it would be in the consumer's interest (not just the banks') to offer banking, insurance and investment products under one roof. While there was skepticism as to how well banks and other corporations (such as Sears) could deliver on the financial services supermarket model, there was general agreement that the concept was attractive and could provide numerous benefits and conveniences to consumers.
I'm not so naive as to ignore the fact Weill benefited significantly from the passage of Gramm-Leach-Bliley, or that he undoubtedly stands to benefit by having the banking sector perform better on the stock market. However, there are many instances in history where individuals or businesses profit from doing the right thing. Sandy Weill is making the right call now, and the fact that he had a different stance 12 years ago just means that times have changed.