In addition to the David Stockman interview, here’s another ‘must watch’ video on the Bill Moyers site John Reed On Big Bank’s Power and Influence. It took courage for John to be this candid, doing so probably puts himself at some personal risk–Wall Street bankers will eventually have to pay for the mess they created. John was an inspirational leader, and always very approachable…definitely one of the good guys in an otherwise dirty industry.
Here’s some personal back story about John and what he covers in the interview; he walked a fine line with what he said about the Traveler’s merger. It was accurate in a Citibank context (which is what he said), but not accurate within a Citigroup holding company context (which is what he doesn’t say).
I went to work as an executive for Citigroup, the holding company that owned Citibank and over 6000 other corporate entities, in January 1996 when John Reed was our Chairman and CEO. My immediate boss, Hubertus Rukavina, was a direct report to John, so I was only once removed in terms of reporting structure. I’d been brought into Citigroup to help converge all the business operations and technologies in their ‘non-bank’ holdings, which were substantial well prior to the Travelers merger three years later. Here’s just what my group alone had in our portfolio to manage: thirteen insurance companies, more than twenty global asset management businesses, around three hundred and fifty mutual funds, six off-shore mutual fund processing utilities, and numerous stock brokerage units–Citibank Investment Services and Newbridge Securities being two of the largest. How can that be, you ask? This was years before Glass–Steagall was repealed and what I’ve just described would have been a clear violation of the Banking Act of 1933!
Here’s how it happened. The run up to the eventual repeal of Glass-Steagall had many fits and starts. Sometime prior to the 1990s, in response to heavy bank lobbying, regulators reinterpreted the meaning of the words from the Act–“principally engaged”, and although it was still illegal for Citibank as a bank to engage in these activities (as John says in the interview), the bank’s holding company could. Within months regulators realized they’d made a mistake and closed that window of opportunity. But Citigroup and one other bank holding company (I don’t remember who it was) had moved quickly and already acquired those prohibited business activities before the rules changed back to where they’d been previously. Those two bank holding companies should have been required to divest themselves of those activities, but instead, they were “grandfathered”. No other banks would be allowed to acquire those activities, but Citigroup could keep what they’d already acquired. The stage was set for disaster way before the Traveler’s merger.