Ex-Citigroup Chief John Reed Admits Deregulating Banks was a Mistake

Last Updated Nov 6, 2009 5:37 PM EST

Former Citigroup CEO John Reed is one of the last people you'd expect to hear making a case to break up big U.S. banks. But so he is in an interview with Bloomberg:
I would compartmentalize the [financial] 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.
One other thing -- he's sorry for his role in building Citigroup. "We learn from our mistakes," he said. "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."

A mistake is ordering the lobster bisque when you really wanted split pea. Laying a torch to the global economy is, well, check your thesaurus for a more appropriate noun. And am I missing something, or is Reed admitting that a CEO's duties to shareholders fundamentally conflict with his obligations to his country? That happens to be true (at least for publicly held companies). But it's a startling moment of candor from a former top financial executive, and one who has much to answer for.

In the 1990s, Reed was part of the financial industry posse that strung up the Glass-Steagall Act, a law formerly barring commercial banking companies from entering the securities business, among other restrictions.

Once the statute was repealed, Reed led Citicorp, as it was called at the time, into the arms of Sandy Weill and his Travelers Group. The insurance giant had already bought investment bank Salomon Brothers, and the age of financial supermarkets was off with a bang (In a predictable coda for Weill followers, after the merger Reed was quickly shown the door.)

By now, such apologies are stacking up like junk mail. Alan Greenspan famously fessed up last fall, telling lawmakers that he'd been shocked by the financial crisis. He also expressed dismay that his view of things had turned out to be so wrong, "because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

More recently, while less of an apology than an evasive maneuver, economist Eugene Fama effectively plunged a stake through his "Efficient Market Hypothesis." That's the theory that underpinned the drive to deregulate the financial industry, which spelled the end of Glass-Steagall.

What's next, Hank Greenberg falling on his credit default swap?

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    Alain Sherter covers business and economic affairs for CBSNews.com.