John Reed Support A New Glass-Steagall Act

Former Citigroup CEO John Reed told the Financial Times that the repeal of Glass-Steagall helped caused the crash of 2008. Reed said high risk investments puts the commercial divisions of major banks at risk.

“As trading becomes more important then it becomes harder and harder to keep those cultures separated. And it began to work into the risk-taking culture as well. [In the past] risk officers would say to someone who wanted to make a loan: ‘I don’t like this credit. We aren’t going to do it. Stop. Period.’”

“But now they would recognise that if a certain transaction didn’t go through, his colleague wasn’t going to be paid that year. It became very difficult to say: ‘Sorry. Don’t do it.’ Your colleague was being compensated for doing transactions, not just being at work. It became infectious.”

Reed doesn't buy the arguments anti-regulation fundamentalists. Reed thinks a new Glass-Steagall Act would not overburden banks.

“I think it could absolutely be done. The finance industry is amazingly flexible. We don’t have big, fixed capital bases. It’s not like we have factories that need to be re-engineered.”

Reed told Bill Moyers that he is amazed Congress still listens to the too big to fail banks.

“I’m quite surprised the political establishment would listen to groups that have been so discredited,” Reed tells Moyers. “It wasn’t that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did… And then the whole system came down.”

Congress and the Obama administration listen to the big banks because of campaign contributions. Most members of Congress are economic illiterates. They couldn't tell you that the Glass-Steagall Act separated commercial and investment banks.

Moyer's interview with John Reed.