Issue of the week: A former megabanker’s conversion

It’s “the Wall Street equivalent of a conversion on the road to Damascus,” said Michael Hirsh in National Journal. Sanford Weill, the founder of banking giant Citigroup, rendered his CNBC interviewers speechless last week when he announced that he now favors breaking up the big banks. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail,” he said. That has to be “among the biggest flip-flops imaginable,” said Kevin Roose in NYMag.com. Weill, now retired, was the architect of the modern megabank and Wall Street’s biggest advocate for the 1999 repeal of the Glass-Steagall Act, which separated investment and commercial banking. For him to essentially call for Glass-Steagall’s return and the end of too-big-to-fail banks is akin to Rick Santorum announcing that he was becoming a spokesman for gay rights.

We’d do well to listen, said The New York Times in an editorial. Sometimes “the most powerful voices can be those of the converted.” Like Warren Buffett calling for higher taxes on the rich, Weill’s opinion “carries special weight.” He “knows how the system works” from the inside and can see that taxpayers and the economy are still at risk, said Jared Bernstein in MSNBC.com. For a former banking industry chieftain “to go rogue like this takes some courage.”

What a hypocrite, said Charles Gasparino in HuffingtonPost.com. This is a man who amassed a personal fortune in the hundreds of millions of dollars creating the “monstrosity” that is today’s Citigroup. For years, he defended his role in helping to shatter the wall between investment and commercial banking, knowing that it led directly to “unfettered risk taking,” the financial crisis, and massive taxpayer bailouts. So “it’s hard to take Weill seriously” now that he’s had a change of heart. His record as a banker should frankly “banish him from ever dispensing advice on the business he helped destroy.”

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Weill has it wrong in any event, said Steven Pearlstein in The Washington Post. Bringing back Glass-Steagall won’t end too-big-to-fail, since bank consolidation “began long before” its repeal. It’s also a myth that allowing banks to combine investment and commercial divisions precipitated the crisis; Bear Stearns, Lehman Brothers, and Merrill Lynch “never crossed the old line into commercial banking,” and Wachovia and Washington Mutual “got into trouble the old-fashioned way,” by making bad housing loans. Perhaps, then, Weill is merely in “legacy-preservation mode” and hopes to be “remembered as a reformer,” said John Carney in CNBC.com. “Hate to break it to you, Sandy, bro. You’re always going to be the guy who built the monster.”