John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts. "I'm sorry," Reed, 70, said in an interview yesterday. "These are people I love and care about. You could imagine emotionally it's not easy to see what's happened." Citigroup was formed in 1998 when Citicorp, a commercial bank, combined with Sanford I. Weill's Travelers Group Inc., which owned the investment firm Salomon Smith Barney Holdings Inc. The New York-based company lost $27.7 billion in 2008 and took $118 billion in writedowns. Now 34 percent-owned by the Treasury Department, Citigroup sought help in the wake of a credit freeze that claimed three of Wall Street's biggest firms and led to the deepest recession in 70 years. 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. – Bloomberg
Dominant Social Theme: Finally he apologies for what he did.
Free-Market Analysis: So now Reed has joined the Glass-Steagall bandwagon, the legislation of which (in various countries) previously split up commercial and investment banks. Most of it was abolished in the 2000s or thereabouts. Now, we see that Reed, too, believes that the problem with what happened to the financial economy has to do with bad financial regulation. What is there to say about this confession? Perhaps we would believe it more if Reed gave back some of the money he made while building his financial empire. Somehow we doubt that will happen.
We ask, indelicately, if maybe Reed was somehow compensated for his confession? No, we don't really think so, but it does come at a convenient time. Central bankers, as we pointed out elsewhere, are sounding fairly frustrated with the pace of "reform" in the wake of the "financial crisis," which means that the larger monetary elite is equally frustrated.
So enter Reed, one of the biggest private bankers of them all to throw his weight behind "reform." We think we know why it is so important to get the ball rolling now. The message is getting away from the central bankers. The Federal Reserve is under threat of an audit and the European and British central banks have come under heavy criticism. A good trans-Atlantic set of hearings aimed at ferreting out private-market criminality will take the heat off the central banking paradigm.
Conclusion: Enter Reed to do his part. The regulatory changes he advocates will make not the slightest bit of difference. When the next big bubble arrives, the pressure will be on once again to find a way to cash in. Regulations firmly erected will be cast aside, just as they were cast aside this time. The lure of hot money printed by central banks is just too great. When the bubble forms, common sense goes out the window. The only way to ameliorate the Western bubble economy is to do away with central banking. Then the surges of money that turn the heads of even the strongest bankers and industrialists won't be available. That's what Reed should be advocating.
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