Last December we wrote that Citigroup is \u201cthe 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.<\/b> The financial system, as well as Citi shareholders and employees, would benefit.\u201d<\/p>\n
Citi, Rhymes with . . . <\/strong><\/p>\n 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 \u201890s and the 2008 financial crisis.\u00a0 After leaving the Clinton Administration Bob Rubin earned $126 million at Citi for \u2013 for what?\u00a0 In her book Bull by the Horns<\/b> FDIC head Sheila Bair enumerated the egregious errors and excesses that Rubin did nothing to correct.<\/p>\n \u201cIt had major losses driven by their exposure to a virtual hit list of high-risk lending: subprime mortgages, \u2018Alt-A\u2019 mortgages, \u2018designer\u2019 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\u2026If 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\u2019s financial strategies.\u201d<\/p>\n It\u2019s Not Just the Sleaze, It\u2019s the \u2026..<\/strong><\/p>\n But isn\u2019t Citi finally reforming under new management, now that Vikram Pandit has gone?\u00a0 I don\u2019t think so. \u00a0The crony capitalism continues.\u00a0 Consider Jack Lew, another Citibanker headed to Treasury.\u00a0 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.\u00a0 We need not dwell on the serial sleaze well documented by The Wall Street Journal<\/b> \u2013the 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\u2019s future employer, Citigroup; or the weird severance payment that Lew received from Citi for voluntarily<\/span><\/i> leaving the firm, provided he worked for Uncle Sam<\/b>.\u00a0 As Treasury Secretary, Jack Lew will be well placed to do favors for his past (and perhaps future) employer\u2014 much as his patron Bob Rubin was.<\/p>\n The biggest problem with Lew\u2019s revolving door career is not the sleaze.\u00a0 It\u2019s the incompetence.\u00a0 Years of budgeteering in Washington and at NYU definitely did not qualify Lew to hold a senior position in Citigroup\u2019s Alternative Investments unit when hedge funds were melting down.\u00a0 And three years in an obscure staff job at Citi most definitely does not qualify him to be Secretary of the Treasury<\/b>. Lew has very little hands-on experience dealing with securities markets, foreign exchange markets, financial regulation, corporate boards of directors, or foreign financial regulators.\u00a0 If the there is\u00a0 a Euro implosion, a cyber attack on U.S. banks, a stock market crash, or a run on the Treasury market, Lew won\u2019t know what to do.<\/p>\n No Room for On-the-job Training<\/strong><\/p>\n Anyone who reads the history of the 2008 financial crisis comes away saying \u201cThank goodness the Treasury Secretary was Hank Paulson, not either of his predecessors, Paul O\u2019Neil or John Snow.\u201d\u00a0 Those gentlemen were competent CEO\u2019s 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.\u00a0 But at least O\u2019Neill and Snow had been CEOs of major companies.\u00a0 Jack Lew\u2019s only business experience is three years as a corporate bureaucrat.<\/p>\n Copyright Thomas Doerflinger 2013.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" Last December we wrote that Citigroup is \u201cthe 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 … Continue reading