Playahata

In a remarkable policy shift, former Citigroup chairman and chief executive Sandy Weill now thinks that Wall Street should break up its big banks in an effort to regain the public’s trust. “What we should probably do is go and split up investment banking from banking,” Weill said on CNBC’s “Squawk Box” on Wednesday. “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.”

“I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading,” he said. Weill essentially called for the return of the Glass-Steagall Act, CNBC said. The 1933 Depression-era legislation separated investment and commercial banking activities in the wake of the 1929 stock market crash and commercial bank failure, according to Investopedia. It was repealed in 1999 during the Clinton administration.

Weill was one of the architects of the Gramm-Leach-Bliley Act, which helped repeal Glass-Steagall. (In his former office, Weill proudly displayed a large wooden sign with the words “The Shatterer of Glass-Steagall” etched into it.) The 79-year-old Wall Street legend also called for complete transparency in the banking industry. “There should be no such thing as off balance sheet,” he said. “I want to see us be a leader, and what we’re doing now is not going to make us a leader.”

In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.

The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball. Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks).

Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks. (more…)