Last December we wrote that Citigroup is “the defective product of chronic crony capitalism and merger mania. I agree with Sandy Weill, who recommended splitting commercial and investment banking. The next Republican presidential candidate should propose breaking up this too-big-to-fail bank long coddled by Democrats. The financial system, as well as Citi shareholders and employees, would benefit.”
Citi, Rhymes with . . .
Citi has a long, dreary history of being too close to Washington and on the wrong side of every major financial crisis, from the 1920s stock market crash to the financial collapse of Less Developed Countries in the 1980s, the real estate debacle of 1990-91, the tech bubble of the late ‘90s and the 2008 financial crisis. After leaving the Clinton Administration Bob Rubin earned $126 million at Citi for – for what? In her book Bull by the Horns FDIC head Sheila Bair enumerated the egregious errors and excesses that Rubin did nothing to correct.
“It had major losses driven by their exposure to a virtual hit list of high-risk lending: subprime mortgages, ‘Alt-A’ mortgages, ‘designer’ credit cards, leveraged loans, and poorly underwritten commercial real estate. It had loaded up on exotic CDOs and auction-rate securities. It was taking losses on credit default swaps entered into with weak counterparties, and it had relied on unstable, volatile funding…If you wanted to make a definitive list of all the bad practices that had led to the crisis, all you had to do was look at Citi’s financial strategies.”
It’s Not Just the Sleaze, It’s the …..
But isn’t Citi finally reforming under new management, now that Vikram Pandit has gone? I don’t think so. The crony capitalism continues. Consider Jack Lew, another Citibanker headed to Treasury. He spent most of his career in staff jobs in D.C., then a stint as a functionary at NYU, then as a senior executive at Citi from 2006 to 2008, and then back to Washington. We need not dwell on the serial sleaze well documented by The Wall Street Journal –the sky high salary at NYU; the $1.4 million loan from NYU that was subsequently forgiven; the cozy student lending arrangement between NYU and Lew’s future employer, Citigroup; or the weird severance payment that Lew received from Citi for voluntarily leaving the firm, provided he worked for Uncle Sam. As Treasury Secretary, Jack Lew will be well placed to do favors for his past (and perhaps future) employer— much as his patron Bob Rubin was.
The biggest problem with Lew’s revolving door career is not the sleaze. It’s the incompetence. Years of budgeteering in Washington and at NYU definitely did not qualify Lew to hold a senior position in Citigroup’s Alternative Investments unit when hedge funds were melting down. And three years in an obscure staff job at Citi most definitely does not qualify him to be Secretary of the Treasury. Lew has very little hands-on experience dealing with securities markets, foreign exchange markets, financial regulation, corporate boards of directors, or foreign financial regulators. If the there is a Euro implosion, a cyber attack on U.S. banks, a stock market crash, or a run on the Treasury market, Lew won’t know what to do.
No Room for On-the-job Training
Anyone who reads the history of the 2008 financial crisis comes away saying “Thank goodness the Treasury Secretary was Hank Paulson, not either of his predecessors, Paul O’Neil or John Snow.” Those gentlemen were competent CEO’s of large firms, but they had neither the intimate knowledge of financial markets nor the stamina and deal-making experience to survive grueling weeks of crisis management and negotiation involving bankers, investors, Wall Street bankers, Central Bankers, corporate boards, Congressmen and foreign regulators. But at least O’Neill and Snow had been CEOs of major companies. Jack Lew’s only business experience is three years as a corporate bureaucrat.
Copyright Thomas Doerflinger 2013. All Rights Reserved.
