William Isaac and Richard Kovacevich’s April 26, 2017 Op-Ed piece on Glass-Steagall is deeply flawed. One obvious example is their statement that: “Even firms like Citigroup and Bank of America that made a series of mistakes in the 2008 crisis survived because they were diversified.” Citigroup did not survive because it was diversified; it was essentially bankrupt at that time. Citigroup survived because US taxpayers bailed it out to the tune of $45 billion dollars directly and another $431 billion* indirectly through loan guarantees and liquidity support. It was the number one beneficiary of Uncle Sam’s bailout support and Bank of America was number two.
Citigroup was the largest underwriter of collateralized debt obligations in 2007, the year before the crash. A few years later, Citigroup made a $590 million dollar settlement with its stockholders because it had earlier represented that it’s subprime exposure was $13 billion, when in fact it was more than $50 billion. Had Glass-Steagall still been in effect in 2007 and the bank prohibited from underwriting such securities, how on earth would it ever have had even $1 billion of these toxic assets in it’s inventory, let alone $13 billion, or God forbid, more than $50 billion.
*SOURCE: The Final Report of the Congressional Oversight Panel - March 16, 2011