Why Citigroup's Going to Take the Fall

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Mark Lennihan / AP Photo Citi was conspicuously absent from Day 1 of the hearings probing the origins of the financial crisis—but the bailed-out bank is sure to get a grilling from investigators. Simon Johnson on why unrepentant former Citi titans Sandy Weill and Robert Rubin also need a day in the court of public opinion.

It was striking that, on the first day of the Financial Crisis Inquiry Commission on Wednesday, Citi and its representatives were conspicuously absent from the witness box. After all, every major international financial crisis of the past 30 years has involved two elements—unregulated borrowers and Citi.

Often the unregulated borrowers, who get carried away or who are talked into becoming exuberant, are in the “emerging markets” of the day, which could be (and frequently is) in Latin America, Asia, or Eastern Europe. Most recently, the borrowers were high-risk home buyers in the United States.

But Prince and Pandit would just be the appetizer. The main course should be Sandy Weill and Robert Rubin.

In 1982, Citibank almost failed because of bad loans made to Latin America. In the late 1980s, the problems were centered on commercial real estate in the U.S.—there was another rescue in 1990-91, by a Saudi prince, no less. Citi was exposed to significant losses in 1998 when Long Term Capital Management nearly failed. And Citigroup, as it is now called, was bang smack in the middle of latest housing/derivatives/failure of risk management fiasco.

Indeed, former CEO Chuck Prince would be the likely winner if anyone ran a worst line of the global financial crisis competition. In July 2007, just as the storm clouds burst, he said, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

As a result, Citi danced its way into the cellar. Completely hammered by the collapse in house prices from 2007, shares lost 95 percent of their value. Citi very nearly failed several times in 2008 and early 2009—saved only by repeated and very generous government bailouts.

Citi’s absence from the first hearing of the commission, formed to investigate the causes of the financial crisis, cannot have been an oversight; nor, given the commission’s subpoena powers, can Citi refuse to cooperate. Phil Angelides, head of the panel, is a tough operator who demonstrated—as treasurer of California—that he knows how to walk softly and apply the business end of a big stick. Nor is it remotely possible that any reasonable person will consider the commission’s work done until Citi has been hauled in some fashion over the coals.

Most likely, Angelides has in mind an interesting and constructive piece of political theater. On Wednesday, the commission grilled four prominent bankers—from Goldman Sachs, Morgan Stanley, Bank of America, and JPMorgan Chase—and talked with some other market participants. On Thursday it moves on to some regulators. Presumably, the goal is to build the basic plot line in the public imagination and then—but only then—turn to Citi.

What will the Citi conversation look like, when the time comes?

The commission obviously will have to interview Chuck Prince and the current CEO, Vikram Pandit. The questions for them likely will focus on how exactly Citi came to make so many bad decisions and still can’t sort itself out. By all accounts, Citi is a cumbersome, out-of-control bank. Talking about some vivid examples of global overreach could be helpful. Why doesn’t it just break into more productive bits?

View as Single Page 12 Back to Top January 13, 2010 | 11:12pm Facebook | Twitter | Digg |   | Emails | print Recession, Finance, Citigroup, Business, Phil Angelides, Home Buyers, Unregulated Borrowers, Long Term Capital Management, Financial Crisis Inquiry Commission, Latin America, Chuck Prince, Sandy Weill, Citi, Vikram Pandit, Robert Rubin, Jpmorgan Chase, Bank Of America, Asia, America, Morgan Stanley, Citibank, Goldman Sachs  (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: leprechaun1230

The Citi Group Hot Shots should be sent to prison. Their dynasty should be made to break up, so as to never again be too big to fail. May they all rot in hell. I would like to see depositors close their accounts en masse, and teach Citi a lesson. We as American Citizens will not stand for their bad behavior any more, especially when we are bailing their sorry asses out, again and again.

Flag It | Permalink | Reply 10:23 am, Jan 14, 2010 VinnyB

Forget the "court of public opinion," Weill and Rubin should be in court, period! If the Glass-Steagall Act were still in existence, the banks would not have been able to get into these risky businesses. They owe the American taxpayers billions.

Flag It | Permalink | Reply 10:32 am, Jan 14, 2010 comink

Citi should be broken down into the solid business and the bad business investments and products. Executives should have their salary and bonuses exclusively tied to the bad, since they created them. That might be a start to being fair pay for job performance. They whine that they are making money now and deserve bonuses, but fail to remember that they wouldn't have jobs at all if it weren't for taxpayers.

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 11:38 am, Jan 14, 2010 bgeasyas123

Not trying to refute the point because I whole heartedly agree, but who would take those jobs then?

Flag It | Permalink | Reply 1:01 pm, Jan 14, 2010 ThinkAgain

Bailing out all of the big banks to give cover to those seriously in danger made sense during the general panic but it's now time to cut the deadwood loose.

Flag It | Permalink | Reply 12:09 pm, Jan 14, 2010 oliverckerr

I state over and over I am an independent candidate for president of United States. This is my bankster fix, what I am going to put into play, upon my election with Executive Order. Our economy requires an innovative renewal. This is about that - about transferring the private wealth of interest payments from the private banksters, Citi, a good example, to the public good, in such a way to benefit the whole country. Upon election, here is my program. We used to say, what's good for General Motors was good for America. But today, as America goes, so might go the health of our whole planet. We need to refresh our "cap id a list" structures, and renew our entrepreneurial spirit. Obama is not doing that. In Oslo, when Obama stated, accepting the Peace Prize, "We will not eradicate violent conflict in our lifetimes," he was endorsing the continuing ad infinitum Military Industrial Procurement Complex which we cannot afford, with or without true bankster reform. Everything hangs in the balance of sense. First, we, the people, through our government, must purchase every mortgage in USA, the good, the bad, and the ugly. Ugly mortgages are those known as "tock sick" because the clock is ticking on foreclosures affecting the value of whole neighborhoods. These residential mortgages can be purchased with Mortgage Savings Bonds. The Mortgage Savings Bonds is an original innovative financial instrument. Wed are not conducting the buy out with inflationary cold cash, hot off the presses, which in fact we don't have, but Obama's administration insists on printing. The Mortgage Savings Bonds couldn't be cashed until the mortgages are paid, but they could be sold or traded by their holders, the banksters, on the open market. Savings Bonds are backed by the good faith of the American people; in this case, real properties on which these proposed innovative instruments, Mortgage Savings Bonds, will be written. We can pay 85 cents on the dollar for the good, 70 cents for the bad, and 55 cents for the ugly; millions of mortgages, refinanced with thirty-year fixed rates, the interest spread, according to the credit worthiness of the mortgagee, running from 3% for triple A, to 7% for sub-prime, late payers rated deadbeat. This proposed buyout is a reasonable, yes we can do, beneficial refinance program! the giant too big to fail banksters will wet their pants because all of their rip off swap shenanigans are grounded in all the millions of mortgages they hold that by Executive Order we, the people are purchasing with innovative Mortgage Savings Bonds. Retooling these millions of mortgages, a giant job, can be accomplished with a fail-safe do-it-your self, online program. Those without computer literacy can get their numbers entered by income tax preparers, their fee, Uncle Sam guaranteed. Every homeowner benefits from a restructured fixed 30 years mortgage. Every home owning family will have a lower more reasonable mortgage payment with more money in pocket to improve the quality of their life. The whole world's economy will settle into non-inflationary growth from this mortgage solution. We can tack a non-interest bearing 2nd mortgage on sub-prime homes that swapped and sold for twice their value, (tock sick) toxic still, after a 60 percent whack, so people can remain in their sub-prime dream, pay down their debt, and eventually, as prices inch up, their mortgage drawn down, see their liens paid off fair and square, with their equity left intact. This is a healthy way to stabilize sub-prime neighborhoods. A foreclosed house devalues the street. After our Louisiana styled repurchase, the mortgages on every house in America will be divided amongst bank branches in the same zip codes, for servicing. The ex-mortgage holder banks are compensated for collecting our mortgage payments, on behalf of we, the people, the Mortgage Savings Bond backers. We let the banks hold 'our' money, twelve payments worth, before they have to begin handing over our ducats to Washington. With a year of mortgage money, banks at the branch level will be flush with liquidity for loans, replacing money central management blew on swap speculations. Branches can provide capital to all the capital hungry businesses in their zip codes the old fashioned way, after a visit to the businesses premise. There will be interest on the Mortgage Savings Bonds with which all the home mortgages were purchased. There will be interest on 'our' money, which we are allowing the banks to borrow from us expressly to loan out to all the businesses in their neighborhoods that require capital, so interest we accrue from our trillion-dollar mortgage purchase is washed. Our Treasury Secretary misstated on This Week, With George Stephanopoulos, "A core part of our plan involves making sure banks have enough capital to provide the lending we are going [slur] need to get recovery back on track" He was wrong. The banks used our bailout money to purchase other banks instead of loaning the money to capital hungry businesses! Now to the interest on these millions of mortgages: The interest goes to Washington every month! The monthly interest on all the home mortgages in USA, could total 300 billion dollars. All the income tax collected from taxpayers, their taxable earnings up to 125 grand's worth, might also total 300 billion dollars per month. The interest on all our home mortgages can replace our income tax, up to the first 125 thousand dollars worth of taxable income! Someone who rents has their income tax dollars in their own pocket to do with as they please, pay down credit card debt, save up for a house, a car, the kid's tuition, pizza. Keeping your money is a politic concept all the people can endorse as long as the government is able to operate and deliver services. A working homeowner is freed from paying income tax. The interest on his mortgage goes for our public works, replacing the tax on his hands. Washington, DC has operating capital. We keep what is ours. Apply this same principal to commercial mortgages. The mortgages are seized, not the property. Mortgage Savings Bonds are a great rock solid investment. This buyout is fabulous for commercial mortgage holders because so many are facing default. The advantage: their property is purchased, the mortgage in the Government's hands, via Mortgage Savings Bonds, letting the owners off the hook, their option, retain property management, which earns them money. The principal goes toward retiring the Mortgage Saving Bonds, the interest to cover the rising cost of living, example Medicare, so life is good for all. The above program provides permanent income tax relief for our citizenry, toxic asset relief for bogus banks, and effective capital replenishment for the government. With this mortgage innovation in place, other countries will be lining up to invest in America. We want that. 180 million taxpayers will vote for these recession stuffing relief measures in a heartbeat because every taxpayer benefits. President Obama should read this essay. His approach feeds the bureaucracies that fed his campaign by printing trillions of dollars in future debt, Obama's risk: a stick of chewing gum will cost our gum chewing electorate one dollar plus tax before the next election. This innovative program bypasses bureaucracies, the only ego inflated creatures on planet earth that both feed on themselves, and multiply. Can you suck on your toe and create two of you? Bureaucracies can and do. Bureaucracies are rigid, appearing unsinkable, but they must be "sliminated" for planet health. We need to rearrange how governments generate money so the funds are available to cleanly reenergize our good ship Mother "Urf." I am an independent candidate for president. The above is my mortgage program. (Insert Law and Order drum beat). michaelslevinson.com is the official web site of the Michael Stephen Levinson independent campaign for United States president and the page out of which the Independent Lev Party will become electoral reality. michaelslevinson.com

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 12:48 pm, Jan 14, 2010 bgeasyas123

Does anyone read these?

Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 1:03 pm, Jan 14, 2010 longueuilrois

I started then fell asleep.

Flag It | Permalink 2:22 pm, Jan 14, 2010 johnwr3

I think we shood impose a filibuster rule. Anyway, I'm getting sick of all this non-constitutional wealth redistribution crap!

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Forget the "court of public opinion," Weill and Rubin should be in court, period! If the Glass-Steagall Act were still in existence, the banks would not have been able to get into these risky businesses. They owe the American taxpayers billions.

Citi should be broken down into the solid business and the bad business investments and products. Executives should have their salary and bonuses exclusively tied to the bad, since they created them. That might be a start to being fair pay for job performance. They whine that they are making money now and deserve bonuses, but fail to remember that they wouldn't have jobs at all if it weren't for taxpayers.

Not trying to refute the point because I whole heartedly agree, but who would take those jobs then?

Bailing out all of the big banks to give cover to those seriously in danger made sense during the general panic but it's now time to cut the deadwood loose.

I state over and over I am an independent candidate for president of United States. This is my bankster fix, what I am going to put into play, upon my election with Executive Order. Our economy requires an innovative renewal. This is about that - about transferring the private wealth of interest payments from the private banksters, Citi, a good example, to the public good, in such a way to benefit the whole country. Upon election, here is my program. We used to say, what's good for General Motors was good for America. But today, as America goes, so might go the health of our whole planet. We need to refresh our "cap id a list" structures, and renew our entrepreneurial spirit. Obama is not doing that. In Oslo, when Obama stated, accepting the Peace Prize, "We will not eradicate violent conflict in our lifetimes," he was endorsing the continuing ad infinitum Military Industrial Procurement Complex which we cannot afford, with or without true bankster reform. Everything hangs in the balance of sense. First, we, the people, through our government, must purchase every mortgage in USA, the good, the bad, and the ugly. Ugly mortgages are those known as "tock sick" because the clock is ticking on foreclosures affecting the value of whole neighborhoods. These residential mortgages can be purchased with Mortgage Savings Bonds. The Mortgage Savings Bonds is an original innovative financial instrument. Wed are not conducting the buy out with inflationary cold cash, hot off the presses, which in fact we don't have, but Obama's administration insists on printing. The Mortgage Savings Bonds couldn't be cashed until the mortgages are paid, but they could be sold or traded by their holders, the banksters, on the open market. Savings Bonds are backed by the good faith of the American people; in this case, real properties on which these proposed innovative instruments, Mortgage Savings Bonds, will be written. We can pay 85 cents on the dollar for the good, 70 cents for the bad, and 55 cents for the ugly; millions of mortgages, refinanced with thirty-year fixed rates, the interest spread, according to the credit worthiness of the mortgagee, running from 3% for triple A, to 7% for sub-prime, late payers rated deadbeat. This proposed buyout is a reasonable, yes we can do, beneficial refinance program! the giant too big to fail banksters will wet their pants because all of their rip off swap shenanigans are grounded in all the millions of mortgages they hold that by Executive Order we, the people are purchasing with innovative Mortgage Savings Bonds. Retooling these millions of mortgages, a giant job, can be accomplished with a fail-safe do-it-your self, online program. Those without computer literacy can get their numbers entered by income tax preparers, their fee, Uncle Sam guaranteed. Every homeowner benefits from a restructured fixed 30 years mortgage. Every home owning family will have a lower more reasonable mortgage payment with more money in pocket to improve the quality of their life. The whole world's economy will settle into non-inflationary growth from this mortgage solution. We can tack a non-interest bearing 2nd mortgage on sub-prime homes that swapped and sold for twice their value, (tock sick) toxic still, after a 60 percent whack, so people can remain in their sub-prime dream, pay down their debt, and eventually, as prices inch up, their mortgage drawn down, see their liens paid off fair and square, with their equity left intact. This is a healthy way to stabilize sub-prime neighborhoods. A foreclosed house devalues the street. After our Louisiana styled repurchase, the mortgages on every house in America will be divided amongst bank branches in the same zip codes, for servicing. The ex-mortgage holder banks are compensated for collecting our mortgage payments, on behalf of we, the people, the Mortgage Savings Bond backers. We let the banks hold 'our' money, twelve payments worth, before they have to begin handing over our ducats to Washington. With a year of mortgage money, banks at the branch level will be flush with liquidity for loans, replacing money central management blew on swap speculations. Branches can provide capital to all the capital hungry businesses in their zip codes the old fashioned way, after a visit to the businesses premise. There will be interest on the Mortgage Savings Bonds with which all the home mortgages were purchased. There will be interest on 'our' money, which we are allowing the banks to borrow from us expressly to loan out to all the businesses in their neighborhoods that require capital, so interest we accrue from our trillion-dollar mortgage purchase is washed. Our Treasury Secretary misstated on This Week, With George Stephanopoulos, "A core part of our plan involves making sure banks have enough capital to provide the lending we are going [slur] need to get recovery back on track" He was wrong. The banks used our bailout money to purchase other banks instead of loaning the money to capital hungry businesses! Now to the interest on these millions of mortgages: The interest goes to Washington every month! The monthly interest on all the home mortgages in USA, could total 300 billion dollars. All the income tax collected from taxpayers, their taxable earnings up to 125 grand's worth, might also total 300 billion dollars per month. The interest on all our home mortgages can replace our income tax, up to the first 125 thousand dollars worth of taxable income! Someone who rents has their income tax dollars in their own pocket to do with as they please, pay down credit card debt, save up for a house, a car, the kid's tuition, pizza. Keeping your money is a politic concept all the people can endorse as long as the government is able to operate and deliver services. A working homeowner is freed from paying income tax. The interest on his mortgage goes for our public works, replacing the tax on his hands. Washington, DC has operating capital. We keep what is ours. Apply this same principal to commercial mortgages. The mortgages are seized, not the property. Mortgage Savings Bonds are a great rock solid investment. This buyout is fabulous for commercial mortgage holders because so many are facing default. The advantage: their property is purchased, the mortgage in the Government's hands, via Mortgage Savings Bonds, letting the owners off the hook, their option, retain property management, which earns them money. The principal goes toward retiring the Mortgage Saving Bonds, the interest to cover the rising cost of living, example Medicare, so life is good for all. The above program provides permanent income tax relief for our citizenry, toxic asset relief for bogus banks, and effective capital replenishment for the government. With this mortgage innovation in place, other countries will be lining up to invest in America. We want that. 180 million taxpayers will vote for these recession stuffing relief measures in a heartbeat because every taxpayer benefits. President Obama should read this essay. His approach feeds the bureaucracies that fed his campaign by printing trillions of dollars in future debt, Obama's risk: a stick of chewing gum will cost our gum chewing electorate one dollar plus tax before the next election. This innovative program bypasses bureaucracies, the only ego inflated creatures on planet earth that both feed on themselves, and multiply. Can you suck on your toe and create two of you? Bureaucracies can and do. Bureaucracies are rigid, appearing unsinkable, but they must be "sliminated" for planet health. We need to rearrange how governments generate money so the funds are available to cleanly reenergize our good ship Mother "Urf." I am an independent candidate for president. The above is my mortgage program. (Insert Law and Order drum beat). michaelslevinson.com is the official web site of the Michael Stephen Levinson independent campaign for United States president and the page out of which the Independent Lev Party will become electoral reality. michaelslevinson.com

Does anyone read these?

I started then fell asleep.

I think we shood impose a filibuster rule. Anyway, I'm getting sick of all this non-constitutional wealth redistribution crap!

Thank you. As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.

Please log in to leave comments.

Harold Ford Implodes

Peter Beinart, senior political writer for The Daily Beast, is an associate professor of journalism and political science at City University of New York and a senior fellow at the New America Foundation.

Politicians Gone Crazy

Tina Brown is the founder and editor-in-chief of The Daily Beast. She is the author of the 2007 New York Times best seller The Diana Chronicles. Brown is the former editor of Tatler, Vanity Fair, The New Yorker, and Talk magazines and host of CNBC's Topic A with Tina Brown.

Obama Promises Historic Relief Effort

Tells Haitians: "You will not be forsaken."

House Subpoenas Geithner’s Records

Wants AIG emails and phone logs.

White House Proposes Bailout Tax

To recoup taxpayer losses.

The Bonus Boomerang

Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.

Timmy's Telephone Travesty

Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.

Obama's Secret Jobs Plan

Simon Johnson is a professor at MIT’s Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.

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