The Man Who Shattered Our Economy
This story originally appeared at Truthdig. Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
Rejoice, the housing market is back. Sandy Weill just picked up a humdinger of a wine vineyard estate in Sonoma, Calif., for a record $31 million, so the foreclosure crisis—which the former CEO of Citigroup did so much to create when he successfully lobbied then-President Bill Clinton to sign off on radical deregulation of the banking industry—must be over.
After all, Weill wasn’t desperate for shelter, already being in possession of a fourteen-acre estate in über-exclusive Greenwich, Connecticut, and a 120-acre spread in New York state’s Adirondacks. Let’s also not forget the penthouse that he bought for $42.4 million in New York City in 2007 as the banking collapse he helped engineer was fast developing. Not too shabby for a guy who ran Citigroup into the ground by trafficking in what proved to be toxic mortgage-based securities.
Thanks to legislation that Weill got President Clinton to sign off on, Citigroup was allowed to become too big to fail, and when fail it did, the taxpayers had to bail the humongous bank out—to the tune of $50 billion in a direct subsidy and $306 billion more for the housing mortgage-backed securities Citigroup was holding. The Treasury still owns a good chunk of Citigroup common stock, now trading at a paltry four dollars and change per share. However, like all of the other top dogs involved in this scandal, Weill has emerged from a housing crisis that has impoverished tens of millions of Americans with his own personal fortune intact. Indeed, as evidenced by his vineyard purchase, he has quite a bit of money to throw around.
Although the value of most housing in Sonoma County, in the heart of the wine country, is down 30 to 50 percent, Weill was willing to pay close to the asking price for his new property. And why not? As the San Francisco Chronicle website quoted one Coldwell Banker real estate agent as saying, the sale “is not an indicator of an emerging real estate recovery, but rather the ability of the world’s wealthiest individuals to buy what they desire.”
Some guys have all the luck, particularly when they supply the dice. There would be no housing crisis were it not for radical financial deregulation legislation that Weill and other Wall Street hotshots got Clinton to approve. First Weill engineered a merger of the Travelers insurance company, which he headed and which included investment banking in its portfolio, with the commercial banking entity of what was then Citicorp. That merger would have been judged illegal because of the Glass-Steagall legislative barrier to merging investment and commercial banking that President Franklin Roosevelt signed into law to prevent another Great Depression, but Weill got the law changed to accommodate his plans.
Boy, was Weill ever persuasive, not only enlisting the bipartisan support of Washington politicians but the enthusiastic backing of the establishment media. As the New York Times editorialized back in April of 1998 in praising the merger: “In one stroke Mr. Reed [John Reed of Citigroup] and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.” A Times news story that day also read like a Wall Street lobbyist’s press release: “In a single day, with a bold merger, pending legislation in Congress to sweep away Depression-era restrictions on the financial industry has been given a sudden, and unexpected, new chance of passage. … Indeed, within 24 hours of the deal’s announcement, lobbyists for insurers, banks and Wall Street firms were huddling with Congressional banking committee staff members to fine-tune a measure that would update the 1933 Glass-Steagall Act separating commercial banking from Wall Street and insurance.…” Notice the Times’s use of “update” to mask what was a clear reversal of the law.
It helped that former Goldman Sachs honcho Robert Rubin was Clinton’s treasury secretary, and after the bill was passed, Weill rewarded Rubin with a $15-million-a-year job at the new Citigroup, which was now legal, thanks to the legislation Rubin had helped pass. When Clinton signed the bill reversing Glass-Steagall and making the Citigroup merger legal, he gushed: “Today what we are doing is modernizing the financial services industry, tearing down those antiquated laws and granting banks significant new authority.” Clinton then handed Weill a pen he used in signing the bill, and that pen ended up framed on the wall at the CEO’s office near a plaque that paid tribute to Weill as “The Man Who Shattered Glass-Steagall.” And shattered our economy as well. His are the grapes of wrath.
Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).