We love mea culpas, perhaps because we don't get enough of them these days. When something goes wrong, it's always someone else's fault. Housing bubble? Blame the Fed. Loose lending? Blame investor demand. Bad regulation? Blame Barney Frank. Demise of Lehman Brothers? Blame the short sellers. Economy crashed? Blame Greenspan. Greenspan's messed up? Blame Friedman. Blame Rand. Blame Balloon Boy. Blame. Blame. Blame.
That's why I'd like to send a big, warm thank-you to Citigroup's (NYSE: C ) former CEO and architect, John Reed. After championing the push to repeal Glass-Steagall in the late '90s, enabling Citigroup to become what it is today, Reed recently told Bloomberg:
I'm sorry ... We learn from our mistakes ... When you're running a company, you do what you think is right for the stockholders. Right now I'm looking at this as a citizen.
I would compartmentalize the industry for the same reason you compartmentalize ships. If you have a leak, the leak doesn't spread and sink the whole vessel. So generally speaking you'd have consumer banking separate from trading bonds and equity.
Strong words from a man who pushed and pried for the exact opposite one decade ago. Back then, he and others apparently believed that if we welded together everything with a dollar sign in front of it, we'd be ushered into a banking nirvana full of puppies, kittens, and rainbows. Yeah, not so much.
Let's not understate what Reed's advocating here: Some form of Glass-Steagall should be reinstated, and megabanks should be broken apart. That means you, Citigroup, Bank of America (NYSE: BAC ) , JPMorgan Chase (NYSE: JPM ) , Wells Fargo (NYSE: WFC ) , Goldman Sachs (NYSE: GS ) , and Morgan Stanley (NYSE: MS ) . The latter two are already commercial banks by default, after being granted emergency status last fall. These monster banks all have fundamental flaws. And they need to end.
Why is retired Reed coming clean while so many other industry heavyweights still cling to the good ol' days? That question answers itself. Reed doesn't hold a high-level position at any major bank anymore. His livelihood isn't as vested in the industry's profits as those who still argue that megabanks are a good thing. He knows the situation better than almost anyone else, yet he's in a position to tell it like it is. That's the kind of guy you want to listen to.
Reed's comments are one of the strongest signals yet that major bank reform is not only necessary, but gaining support. Later this week, my colleague Ilan Moscovitz and I will publish a detailed rundown showing why we believe there's absolutely no excuse not to break up the biggest banks. Stay tuned.