Is it premature to speak of the failure of Citigroup?
No, the bank is finished. The only question is the nature of its post-death life as a zombie.
The Fed and FDIC may cut off a few of the more gangrenous pieces, stuff it full of paper, bolt on a prosthetic or two, perhaps apply enough cosmetics to give it some semblance of an afterlife, but the hard fact is the bank has collapsed, and would not open its doors again without extraordinary measures to maintain the appearance of existence.
How did this happen? Although this article does not mention the chief architect, Sanford Weil and another member of the supporting cast Larry Summers, it does pay tribute to Robert Rubin who, with Alan Greenspan, helped to create one of the greatest financial bubbles in history.
The New York Times
Citigroup Pays for a Rush to Risk
November 22, 2008
...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.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another.
Citigroup was ensnared in murky financial dealings with the defunct energy company Enron, which drew the attention of federal investigators; it was criticized by law enforcement officials for the role one of its prominent research analysts played during the telecom bubble several years ago; and it found itself in the middle of regulatory violations in Britain and Japan....As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger....
Does a Weakness in Banking Regulations Result in Economic Imbalances and Asset Bubbles?
PBS Frontline: Mr. Weill Goes to Washington
Time Magazine February 15, 1999
