Sandy Weill is wrong. Separating commercial from investment banking is not a good idea. Glass-Steagall was always foolish and the 1999 law that overturned it was an intelligent move. The financial crisis was not related to the abolition of Glass-Steagall.
I agree that taxpayers should not backstop proprietary trading. I agree 100 percent with that and yet I think the Volcker Rule is ridiculous. How do you reconcile those views? Simple, get the taxpayer out of the way. It is one thing to guarantee $ 10,000 checking accounts, but the Fed guarantees, effectively, all the creditors of our banking system. No creditor, including unsecured bond holders, has ever lost a penny when an FDIC guaranteed bank failed. They bail out everyone, even though there is absolutely nothing in the law governing the FDIC guarantees that sanctions such activity. The FDIC puts the taxpayer at risk -- after the fact -- with no legal authority whatsoever. That's what Sheila Bair's FDIC does, in reality. They extend the law to give themselves powers that the law never granted them.
What should be done is to roll back the FDIC guarantees to $ 10,000 per individual (not per account) and get the taxpayer out of the way. Secondly, let investment banks, like JP Morgan, Citi, Goldman Sachs, whatever, fail when they can't make it. Get the taxpayer out of the way. Nothing justified the foolish TARP bailout. It was bad policy then and would be bad policy now. (Whether or not it made money or not is irrelevant. It created a moral hazard problem that will not go away easily).
By providing all these taxpayer guarantees, you rationalize the absurd regulatory regime that Dodd-Frank is ushering in. It might be simpler to just pass a law that says average Americans can no longer borrow money legally and if the average American wants a credit card, forget it. That would be a lot cheaper and accomplish pretty much the same thing as Dodd-Frank.
Providing taxpayer guarantees where they are completely unnecessary and then regulating the financial service industry into morbidity simply sucks the life out of a free enterprise economy. The result is what you see today in the American economy. We have turned our banking system into a state run banking system modeled after the system that the Chinese are now trying to discard. Good for them; our bad.