Citigroup To Be Led By Ex-Treasury Chief
Official Treasury Photo
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
Comments
The Dems are already rushing in with proposed legislation directed at mortgage brokers and bankers. Just like they did in the 80’s, they’ll make the mess worse. Legislation in committe right now would make it much harder and much more expensive for even average borrowers to get mortgages. Those dems never miss a chance to over regulate when the time is wrong.
C
Chuck, what did Congress do in the 80s that “made the mess worse”?
The S&L mess cost hundreds of billions of dollars, in 80s terms: costs born by taxpayers. Some pin the blame on Reagan’s de-regulation push — is this what you meant?
Or do you want to put the problem at the feet of the Fed, the non-governmental agency that determines the nation’s money supply?
You’ve given me two false dilemmas. I choose neither.
Several series of Congressional deregs and new regs contributed to the crisis. You probably aren’t aware of this but Reagan wasn’t in congress and doesn’t make the bills and laws. News to you huh?
Reagan may be partially responsible but Carter sewed the seeds and Congress guaranteed the failures by trying to manipulate investors, S&Ls, depositors etc through incentives.
My point is that the current mortgage malaise will be compounded by HR3915 which is a bill the Dems want passed. I can only assume they are complete economic idiots or it’s just another tool they know will be veto’d so that they can make some lame claim that Bush stood in their way to regulate the mortgage business. Maybe it’s both?
C
Hi, Chuck:
First, I did not say Reagan was in Congress. Are you arguing that Reagan did not push de-regulation?
I thought the S&L issue was de-regulation — not Congressional incentives. I lived thru the era, but I don’t remember. What do you mean, congressional incentives for what?
And what “seeds” did Carter sow?
HR 3915 is being marked up Tuesday. Mortgage Reform and Anti-Predatory Lending Act of 2007 press release. Here’s thomas; as I’m sure you know, most bills never make it out of committee.
I’m saying that you lefties love to blame Reagan for everything. Yes he pushed for deregulation but congress responded by offering federally funded insurance coverage to depositors/investors creating a heads I win tails you lose scenario. That’s only one screwup. It’s very convoluted and I suppose no one will ever have a definitive answer to who is to blame but there’s plenty of blame to go around. Carter instituted a new insurance policy just before he left, giving depositors more coverage with less risk. I lived through it too but was oblivious to what was going on since I was poor and had nothing to save anyway.
I’m no expert on this subject but again my point is Congress should stay out of economics as much as possible. Let the free market work like it’s supposed to work.
C
Hi, Chuck:
Let me see if I have this straight.
Reagan had his hands ties by Congress, but Carter could implement things by fiat? That certainly seems to be what you’re saying.
For the record, I voted for Reagan. The first time.
I never said anything remotely like what you’re portraying and you know it. I’m saying that the debacle started during the Carter admininstration, then Reagan and bled all the way into G H Bush’s first and only term.
You seem to want to pretend that this was entirely a Reagan issue since it fits your political agenda. If you believe this where is your proof? Please don’t link it to some far left wacko website. What one, two or three acts did Reagan inact to cause this debacle? If you think for one moment that Carter, Reagan, Congress, Volcker and a cast of thousands did not cause this, you are simply too blonde for journalism.
C