In researching the Citigroup section of Bailout Nation, I came across this improbable 1998 William Safire essay on the Citicorp-Travelers merger. Surprisingly, Safire makes a strong case against the merger, making several points (below).
It is most likely the most prescient thing he ever wrote:
• No private enterprise should be allowed to think of itself as ”too big to fail.” Federal deposit insurance, protecting a bank’s depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge ”group” runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.
• Let’s not be in such a big rush to knock down barriers. The Government’s biggest financial mistake of the past generation was to raise deposit insurance to $100,000 while allowing housing S.& L.’s to plunge into commercial lending. That all but removed the element of risk from foolish or corrupt loans and helped bring on the S.& L. debacle. Good fences make good banks.
• Beware the slippery slope to crony capitalism. Paul Volcker, former Fed chairman, is less troubled than I am about an amalgam of financial services, provided the Fed is the supervisor. ”But there is an Anglo-Saxon tradition separating banking and commerce,” he says. ”I’d continue to draw the line between finance and business.”
Fascinating stuff . . .
Essay; Don’t Bank On It
NYT: Thursday, April 16, 1998