Citigroup To Be Led By Ex-Treasury Chief

Update 2 11.04 10.44, 5 Nov

Former U.S. Treasury Secretary Robert Rubin has replaced is rumored to be in line to soon-to-be-gone Citigroup CEO Charles O. Prince III, according to the NY Times. Citigroup is the largest U.S. bank; Prince resigned is expected to in part due to the "widening subprime mortgage crisis," marked by a $8-11 billion write-down $5.9 billion write-down.

Prince's departure followed last week's ouster of Stanley O'Neal at Merrill Lynch, suggesting there may be a fundamental problem that transcends personality.

How much of Citi's mess is the result of changes to federal law during the Clinton era, an era represented by Rubin?

Citi's Downfall
Citigroup's write-down is in addition to $2.2 billion announced mid-October. It also affected the value of the world's banks; stock in several global banks fell about 3.0 percent on the news.

Rubin's Pedigree
Like many Treasury chiefs, Rubin became Secretary of the Treasury after tenure at Goldman Sachs & Co. (26 years and co-chair). His first task as Clinton's Secretary was the 1995 Mexican financial crisis.

Rubin, who the NYT says would be interim chief, knows the right people in Washington if Congressional help is needed with the subprime mortgage situation. Will this be another savings and loan fiasco?

Two weeks ago, Rubin said the bank's investment portfolio was not the economy's biggest problem: "The banks appear to be in fine shape. That's not the problem. It's been presented as a sort of centrepiece of what's going on. I don't think that's right."

Rubin served as Secretary under President Clinton (1995-1999), so it might be a bit harsh to characterize this as part of the Beltway revolving door, unless those insider connections are needed to salvage more than Citigroup's pride.

National Politics
No presidential candidate -- Democrat or Republican -- has yet commented on Citigroup's mess. Could it be because they are, for the most part, "bought" by banks and Wall Street?

Mother Jones reported last month that Clinton's presidential campaign raised "$207,670 from employees of Morgan Stanley, $186,540 from employees of Goldman Sachs, and $96,015 from employees of Citigroup."

And Biz Journals reported these factoids from the Center for Responsive Politics:

• Financial giants Goldman Sachs, Morgan Stanley, Citigroup and JP Morgan Chase & Co. are all among the top sources of campaign funds for Clinton, McCain, Obama, Giuliani and Romney.
• Merrill Lynch and Credit Suisse Group are also top contributors to McCain, Clinton, Giuliani and Romney.
• Private equity firms, hedge funds and other investment groups also show up as leading contributors to McCain, Edwards and Romney.

Also, William Greider at The Nation indicts the Democratic Party:

The creation of Citigroup as an all-purpose financial supermarket and too-big-to-fail banking marvel was very much the accomplishment of Clinton Democrats. They enacted the law in the late 1990s that authorized this megabank monstrosity, with coaching from Treasury Secretary Robert Rubin, Fed chairman Alan Greenspan and of course Sanford Weill, the creative genius who built Citi.

Now that this institution has slid into deep trouble and Rubin has been appointed emergency chairman to rescue it, Democrats inherit the stink. They made this mess possible. Will they now accept the meaning of Citigroup gone sour and begin to undo the damage? That is, undertake reform of the financial system in fundamental ways? I doubt it, though the message is obvious.

Just as the GOP dreamed for decades of dismantling Social Security, investment bankers campaigned for thirty years to repeal the Glass-Steagall Act, which separated commercial banking from its investment-house cousins. This was the New Deal achievement enacted in response to the double-dealing banking practices that contributed to the crash of 1929. Bankers pushed their depositors into buying the corporate stocks the bankers were hustling, among other malpractices. Wall Street hated the law but failed year after year to win repeal. The problem was always Democrats (since Republicans were sure supporters).

What do you think?

Profile of the Treasury Department from US Economy @ About.com.

^{Originally posted 02:34, 4 November}