Citigroup Saw No Red Flags Even as It Made Bolder Bets (Robert Rubin in part to blame)

[girl gone mad]

In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own well-being.

There, Citigroup’s chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything was O.K.

(snip)

While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.

The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.

When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

http://www.nytimes.com/2008/11/23/business/23citi.html?_r=1&hp

It's a long article, but worth a read. Rubin was Timothy Geithner's mentor at Treasury during the Clinton administration. As such, it's highly unlikely that he'll bring any change to the revolving door, quid pro quo system between the Fed, Treasury and WS. Rubin set himself up for riches when he left his post, and Geithner, having not made any of his own wealth yet, will be tempted to do the same.

[BlooInBloo]

1. The usual media attempt at "fair and balanced". Rubin did one thing, Phil Gramm did a brazillion....

And what we get is that Rubin is in part to blame.

[MannyGoldstein]

2. Rubin Helped Architect The Grand Job Offshoring Plan Of The 1990s

Helped repeal the Depression-era Glass-Steagall Act, (for which CitiGroup rewarded him very handsomely indeed), and shilled for Enron.

He's not our friend. He's DLC.

[girl gone mad]

4. This article is about Citigroup.

I don't think Phil Gramm was involved with C. But Rubin was one of their chief strategists.

In 2005,...Mr. Rubin ....believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank’s high-growth fixed-income trading, including the C.D.O. business.

Former colleagues said Mr. Rubin also encouraged Mr. Prince to broaden the bank’s appetite for risk, provided that it also upgraded oversight — though the Federal Reserve later would conclude that the bank’s oversight remained inadequate.

Once the strategy was outlined, Mr. Rubin helped Mr. Prince gain the board’s confidence that it would work....

Yet as the bank’s C.D.O. machine accelerated, its risk controls fell further behind, according to former Citigroup traders, and risk managers lacked clear lines of reporting. At one point, for instance, risk managers in the fixed-income division reported to both Mr. Maheras and Mr. Bushnell — setting up a potential conflict because that gave Mr. Maheras influence over employees who were supposed to keep an eye on his traders.

[BlooInBloo]

5. Oh - Somehow I stupidly assumed that all of the FEDERAL deregulation*...

would have been of direct benefit to Citi (its executives at any rate). And it was for that reason that Citi spendt and spends jillions of dollars on lobbyists.

Thanks for setting me straight.


EDIT: *Where damn near all of federal financial deregulatory steps were handed down by Gramm.

[girl gone mad]

7. And Rubin opposed deregulation how, exactly?

Oh, that's right. He didn't.

Both he and Larry summers were central figures in the passage of Gramm-Leach-Bliley. Both encouraged Clinton to sign it, both widely praised it in the media.

[BlooInBloo]

9. I guess thanks are appropriate here, for disagreeing only with things I *didn't* say.

EDIT: Typo.

[Dover]

10. This economic crisis is a bipartisan affair.

Robert Edward Rubin (born August 29, 1938) is Director and Senior Counselor of Citigroup. From November to December 2007, he served temporarily as Chairman of Citigroup. He served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations.

..snip..

Upon Rubin's retirement, President Clinton called him the "greatest secretary of the Treasury since Alexander Hamilton." "During his tenure as Treasury Secretary," Senator Chuck Hagel (R-NE) said, "Bob was an ideal public servant who put policy before politics."

Critics credit Rubin with helping create the conditions for the Financial crisis of 2007–2008, as a result of the policies he pursued as Treasury Secretary. Together with then-Federal Reserve chairman Alan Greenspan, Rubin strongly opposed the regulation of derivatives, when such regulation was proposed by then-head of the Commodity Futures Trading Commission (CFTC), Brooksley Born. Overexposure to credit derivatives of mortgage-backed securities—and credit default swaps (Insurance on securities)(CDS)—was a key reason for the failure of US financial institutions Bear Stearns, Lehman Brothers, Merrill Lynch, American International Group, and Washington Mutual in 2008.

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, has said in explaining Mr Rubin's strong opposition to the regulations proposed by Ms Born that Mr. Greenspan and Rubin were "joined at the hip on this." "They were certainly very fiercely opposed to this and persuaded me that this would cause chaos."

According to the New York Times, "In November 1999, senior regulators—including Mr. Greenspan and Mr. Rubin—recommended that Congress permanently strip the CFTC of regulatory authority over derivatives." This advice was accepted and derivatives were kept clear of regulation by the CFTC.

Warren Buffett later called derivatives "financial weapons of mass destruction", and the lack of regulation of derivatives played a key role in the 2008 financial crisis.

Other competent critics of Rubin's philosophy and policies include Kevin Phillips.
Phillips is author of Bad Money, and was recently interviewed by Bill Moyers.
( Transcript - http://www.pbs.org/moyers/journal/09192008/transcript2.html )


http://en.wikipedia.org/wiki/Robert_Rubin

[theoldman]

3. Let me get this straight.

When Bill Clinton was president. he appointed Rubin as Treasury Secretary. During those eight years we had the best economy during my lifetime. Now Rubin is responsible for President Bush's mistakes. Of course the housing crisis is Carter's mistake. I am beginning to see the picture through a Republicans eyes.

[girl gone mad]

6. I think you should try reading the article before commenting.

This has nothing to do with Bush. It's about Rubin's failures at Citigroup.

I hate to be the one to break it to you, but it's becoming pretty clear that much of Clinton's economic gains were a mirage fueled by the credit bubble that has now burst. NAFTA and deregulation, which he supported and Rubin was a huge proponent of, have eviscerated the real economy. The mirage economy has been exposed for what it is. An economy based almost entirely on consumption in the face of declining wages cannot sustain itself.

[Skink]

8. That's true but why do wages have to decline?

Isn't there such thing as corporate responsibility?