I ventured down to Washington today to see Treasury Secretary Tim Geithner cross-examined by members of the House Financial Services Committee about why the Libor scandal remained hidden for years after the New York Federal Reserve had evidence that fraud was being committed.
True to form, in three hours of testimony, he shed little light on this critical question. Geithner stuck to his script, saying he felt he had acted appropriately and had passed the information on to the Bank of England and various American regulators. Of course, what he passed on was merely a set of recommendations for reform, not the critical fact the New York Fed had evidence of ongoing fraud and market-fixing. The New York Fed’s evidence that the game was being rigged was pretty clear and powerful. The response of the New York Fed, unfortunately, is a metaphor for the way regulators responded generally to financial scandal.
But perhaps overshadowing this critical issue of the Libor scandal was the bombshell dropped by former Citigroup CEO Sandy Weill on CNBC’s Squawk Box this morning. Out of nowhere, Weill, the father of superbanks and bank deregulation, made the following pronouncement: The banks should be broken up. Sandy Weill, of all people, saying the system wasn’t working. He said we need separate investment and commercial banking. This will completely change the debate about financial services reform. It makes Dodd-Frank seem meek in comparison. A new day in the fight for true reform of our financial services sector has begun. This is good news.