Ken Griffin, one of America's best-known hedge fund investors, has a radical idea: Break up big banks, and restore competition and transparency to the financial services industry.
The head of Citadel Capital came out swinging at his own industry in a rare public interview at The New York Times' DealBook Conference on Tuesday.
America's banks have become not just too big to fail, but too big to manage, Griffin told Andrew Ross Sorkin. The first wave of the wand would be to separate securities trading businesses from banking businesses, reducing the kind of systemic risk that led to the financial crisis.
"They got it right in the Great Depression," he said. The Glass-Steagall Act "actually makes a tremendous amount of sense. It is not appropriate for the securities trading industry in our country to [receive] the taxpayer support implicit in the FDIC-insured companies."
This is not likely to be a popular position with his peers. But, Griffin said, "watching the populist anger toward all the financial services over the last couple of years makes me wonder why more people that sit closer to where I sit don't want to put themselves outside of the taxpayer support position they are in today."
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The consolidation of banking—which has accelerated since the financial crisis—has also stuck consumers with higher costs. Lowering deposit caps would encourage the growth of more midsize banks that can provide competitive loans and better services to smaller local businesses, he said.
A more competitive environment open to more banks would lower mortgage costs, for example.
Griffin's biggest worry? Too many years of "easy money" resulting from low interest rates have led to complacency about interest rate risk.
"When inflation rears its ugly head, which it will do, the question is how many people will be caught flat-footed with their interest rates exposures, whether it is in their 401(k)s, their other saving retirements or on the balance sheets of banks," he said.
Reducing the Federal Reserve's intervention in long-term interest rates could do more to help the economy than just about any other position, Griffin argued.
"For the U.S. corporate sector to prosper going forward, we need higher GDP growth globally," he said, "but that higher GDP growth will be tied to higher interest rates."
Higher growth will drive revenues and profits, but higher interest rates will depress stock prices.
So, Griffin said, "if I had to pick 4 percent or 7 percent, I would pick 4 percent."