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“You Say Hello – I Say Goodbye”
[By Dr. David Edward Marcinko; MBA, CMP™
]
Isn’t it ironic that Citigroup just announced the merger of its Smith Barney brokerage into Morgan Stanley’s – a first step to jettisoning the “financial supermarket” business model that former CEO Sandy Weill developed in 1998 when he led he merger of Travelers with Citibank? Of course, I say, Requiem in Pace!
The Glass-Steagall Act
According to the www.HealthDictionarySeries.com, the merger circumvented the Depression-era Glass-Steagall Act that separated commercial and investment banking and helped pave the way for the banking behemoths that have been crumbling during the recent Wall Street credit crisis.
What is Was – How it Worked
The Glass-Steagall Act of 1933 established the FDIC and included various banking reforms, some of which were designed to control speculation. Most well known was Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts. Regulation Q, of course, was repealed in 1980. Any remaining provisions that prohibited banks from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, when it was signed into law by President William J. Clinton.
Never a Fan of GLBA
Glass Steagall was put in place after the great depression to prevent what exactly is happening now. It was a Chinese wall between investment houses and retail banks. Never a fan of the GLBA, I wrote and lectured against it for more than a decade, to the catcalls and hisses of financial advisors and brokerage industry veterans everywhere – so strong were financial industry lobbyists, and Sandy Weill of my hometown of Baltimore, MD.
Conclusion
And so, your thoughts and comments on this Medical Executive-Post are appreciated. Was this a fiasco of the Clinton Administration, and was it a contributing factor in today’s financial meltdown?
In the words of Louis Richard Rukeyser [1933-2006], a family friend from Owings Mills, Maryland; why did we ever say bye-bye to Glass-Steagall?
Conclusion
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Filed under: Alerts Sign-Up, Breaking News, Insurance Matters, Investing, Op-Editorials, Portfolio Management, Risk Management | Tagged: banking, Bill Clinton, Citibank, CitiGroup, commercial banks, FDIC, Glass Steagall Act, Gramm-Leach-Bliley Act, investment banks, Morgan Stanley, Regulation Q, retail banks, Rukeyser, Sandy Weill, Smith Barney, Travelers |
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Schnepper’s Solution,
Was Bernie Madoff an investment supermarket? Although I don’t really care since I lost nothing with him, you doctor-types may have? Now, for me, the market is another thing…!
Nevertheless, according to Jeff Schnepper of MSN Money Talk, rather than deduct a Madoff loss as a short-term capital loss, it may be possible to claim a theft loss.
Financial fraud is included in the US Tax Code’s definition of a theft loss. Madoff confessed to his sons that his investment business was “just one big lie” and “basically a giant Ponzi scheme.” And there’s talk he may soon plead guilty to fraud.
And so, with a theft, the full amount of a Madoff loss would be deductible in the year of the discovery – 2008 in this case – reduced by $100 and 10% of your adjusted gross income. So if your adjusted gross income was $200,000 and you lost $200,000 with Madoff, you might be able to claim a deduction of $179,900.
This is complicated. So, as always, talk it over with your tax adviser. Good luck!
-Nigel
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RIP the Financial Supermarkets,
According to Jim Jubak, of MSN Money, Bank of America CEO Ken Lewis is betting his company that he can take hundreds of billions in government money and avoid the kind of government-engineered breakup now humbling Citigroup [too bad for shareholder].
Could he be right? The big banks are clearly on the edge of crisis that it seems unlikely the government will use the power that comes with being the lender of last resort to break up Bank of America. That leaves BoA with a good shot at coming out of this crisis as the industry’s next, and only, “financial supermarket.”
Again, too bad! I mean is this a goal shareholders seek? The 10-year Citigroup experiment suggests not. Size economies just don’t seem to bring enough of the expected benefits to offset the lack of control that has turned Citigroup into a lesson in the failures of risk management.
The “one-stop-shop” business model has proven a failure again, and again, both on Wall Street and in healthcare. “Best-of-breed”, on the other hand, fosters innovation, competition and deep subject matter knowledge. Of course, allow me to mention service quality, which in my experience through correspondence with Ken Lewis, is abysmal and condescending at BoA.
PS: Dito for most of the so-called financial services sector.
-Stu
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More Madoff Solutions,
Remember, some investors might be able to recover up to $500,000 each through the Securities Investor Protection Corp., which acts essentially as an insurance fund.
-Frank
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Hi Nigel, Stu and Frank,
1. Does the SIPC even have enough money to compensate the Madoff investors?
2. The loss of over $100 billion of shareholder wealth since Lewis and Thain joined forces, has raised questions about how long Lewis’ nearly eight-year tenure should continue.
Many opine it’s time for Lewis to join Thain in retirement; voluntarily or not!
-Greg
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Nigel, Frank, Stu and Gregg,
Much like the John D. Rockefeller Standard Oil industry oligarchy, of the last century, these financial supermarkets and huge banks need to be broken up. Let’s stimulate some real competition.
Enter the trust-busters.
Lincoln
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Like Natural Selection – it’s Called the Business Cycle for a Reason,
The financial supermarket concept is just another term for the traditional business philosophy of vertical integration; or the “one-stop-shop”.
It is a great idea in theory – if all goes well – but it usually doesn’t and I am loath to think of a single industry where it actually works over the long term.
Even in healthcare, with former giants like HCA and Tenet, it was a flawed idea.
Operations and organization is a nightmare; both internally and externally. Insiders compete with each other, information does not flow freely, competition decreases as the monopoly grows; and greed and corruption take over. Sound familiar?
What next? Breakups, bankruptcy, collapses, demutualization, and the rise of innovative mom-and-pop specialty shops that serve niche audiences, with high quality specialty products and services.
IOW: Horizontal integration; or what’s old becomes new, again!
Best
Hope Rachel Hetico; RN, MHA
Certified Medical Planner™
Managing Editor:
http://www.HealthcareFinancials.com
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Hi Hope,
You are so correct. For example, Citi has the following:
* 20 million accounts
* 8,00 branches
* operations in 100 countries.
It has received six rescue operations in the last six years; achieving near penny-stock status.
Hey Sandy – what’s in your zombi-bank’s wallet? … NaDa!
Jeff
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The SEC and Citi
Hah! The SEC is investigating whether in the run-up to the financial crisis Citi acted improperly as it created and marketed a $1 billion CDO.
http://www.propublica.org/article/sec-investigating-citigroup-mortgage-deal
Is anybody surprised?
Mitchell
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Renew Glass-Steagall
Many people, like me, feel we’d be better off by returning to the days of the Glass-Steagall Act.
A recent commentary picks up on that, writing that “the system wasn’t stabilized until the 1930s, when the government separated commercial banking from investment banking, tightened bank regulation and created deposit insurance. This system of rules virtually eliminated bank runs and bank failures for decades, but much of it was junked in a deregulatory process that culminated in 1999 with the repeal of the 1933 Glass-Steagall Act.”
http://www.fiercefinance.com/story/call-glass-steagall-era-banking/2012-01-05?utm_medium=nl&utm_source=internal
Now you know why I have opined thusly, for more than a decade.
Dr. David Edward Marcinko MBA
Publisher-in-Chief
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The Man who Shattered Glass-Steagall
Architect of financial super-banks says ‘Break ’em up’
Former Citigroup CEO Sanford Weill says the big banks are too big and should be broken up.
http://money.msn.com/market-news/post.aspx?post=a0128c49-2c45-48ec-87aa-ccf7ec59471b
Weill was a pioneer in building the banks that have gotten ‘too big to fail.’ Wall Street is astonished. But, I made this same comment in the post above, 3.5 years ago.
Dr. David Edward Marcinko MBA
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