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Dig Deeper


Sanford Weil

B.A. Government – Cornell

The personification of the completely outsized influence the largest Wall Street banks have in the government and at the Federal Reserve.  In the late 1990s Weil decided to create a “one-stop shop” for all types of financial services – from insurance to investing.  In 1998, Citicorp merged with the Travelers insurance company to form Citigroup.  There was one major issue with the merger – the resulting company, Citigroup, was in violation of the Glass-Steagall Act! The Glass-Steagall Act was a piece of Depression-era legislation, which – among many other things – prohibited the merger of commercial and investment banks.

In order for the merger to proceed, Citigroup had to be exempted from the Glass-Stegall Act.  Even the largest Wall Street banks and richest people in the country would be hard pressed to have laws created for their benefit in just a few weeks.  To give Citigroup time to get legislation passed to its liking, the Federal Reserve of Alan Greenspan exempted Citigroup form the Glass-Steagall Act.  However, it was not until the Gramm-Leach-Bliley Act passed in November 1999 that Citigroup even had official, legal standing.  Some people evenly mockingly referred to the Gramm-Leach-Bliley Act as the “Citigroup Relief Act.

The passage of the Gramm-Leach-Bliley Act was spearheaded by President Clinton’s Treasury Secretary, Robert Rubin (#41) and Phil Gramm (#28) had his name on the legislation.  After the crisis many people believe the Gramm-Leach-Bliley act was a huge factor in causing the crisis.  However this belief doesn’t withstand real scrutiny.  The two firms whose existence was made possible by the Act – Citigroup and Merrill – did suffer enormous losses, but even these losses were dwarfed by those of the GSEs, Fannie and Freddie.  In fact, one of the few things Ben Bernanke gets correct in his crisis memoir, The Courage to Act, is his conclusion that repeal of portions of the Glass-Steagall Act had little to do with the crisis.

What is significant about the repeal of portions of the Glass-Steagall Act in the formation of the crisis is the clear evidence it provides of the zeal with which the government and the Federal Reserve were willing to do Wall Street’s bidding.  

Additional Information:

See Phil Gramm (#28) and Robert Rubin (#41) for additional information on the corrupt bargain between Wall Street and government.