Will This “Most Ethical” Congress Hold Fellow Liberals Accountable For The Citigroup Failure?
Imagine a conservative Republican, one who had amassed a personal fortune working for nearly 30 years at Goldman Sachs, had become Treasury Secretary. During his tenure at the Treasury, that the Administration he worked for oversaw the a significant regulatory overhaul of Fannie Mae and Freddie Mac. This involved easing capital requirements, which allowed the entities to leverage their balance sheets to disastrous proportions and loosening regulations. The overall effect, was to feed the insatiable appetite for home-ownership. Mortgages and loans were extended, in order to allow everyone to realize the “dream” of home ownership, regardless of historical ability to repay debt or in lieu of a bad credit history.
Continue to imagine, that while he labored at said Administration, he developed a network of loyal underlings at the Treasury and coveted political contacts in his party affiliation, most of whom shared, more or less, the same notions of sanctimonious policy decisions, in the name of “fairness”.
After he decides to leave politics, he takes advantage of his long pedigree of financial experience and obtained a post as a director at Citigroup, one of the largest and most influential financial institutions in the world. Now imagine our director was found to have tried in vain to persuade bond ratings agencies to avoid downgrading securities issued by the infamous Enron Corporation, because Citigroup had business dealings with now defunct company.
Then imagine that, while still on the Citigroup board, the bank continues to load up on toxic mortgage backed securities, paper associated with the very home mortgages his Treasury department, in conjuction with other cabinet departments, had vigorously pushed for in their economic policies.
Now stop the daydreaming.
Our protagonist is not a conservative Republican, but a Democrat. A very prominent Democrat. He is Robert Rubin. His loyal minions include, but are not limited to, Larry Summers and Tim Geithner, Barack Obama’s choices as head of his National Economic Council and Treasury Secretary, respectively.
What makes all of this extremely pathetic, is that Citigroup was just “rescued” by nearly $350 billion in bailout money just yesterday, on top of a $25 billion capital infusion last month, as part of the Treasury’s TARP program, the implementation of which, was supposed to stop banks like Citigroup from floundering in the first place. So much for that.
Yes, Robert Rubin has been on the Citigroup’s board for nearly a decade. The very same decade that our liberal friends have been screaming bloody murder about: the unfettered capitalism, market deregulation, the relentless greed! All brought on entirely by Republicans and their Wall Street cronies? Hardly:
“Citi never sleeps,” says the bank’s advertising slogan. But its directors apparently do. While CEO Vikram Pandit can argue that many of Citi’s problems were created before he arrived in 2007, most board members have no such excuse. Former Treasury Secretary Robert Rubin has served on the Citi board for a decade. For much of that time he was chairman of the executive committee, collecting tens of millions to massage the Beltway crowd, though apparently not for asking tough questions about risk management.
The writers at the Deal Journal blog remind us of one particularly egregious massaging, when Mr. Rubin tried to use political muscle to prop up Enron, a valued Citi client. Mr. Rubin asked a Treasury official to lean on credit-rating agencies to maintain a more positive rating than Enron deserved. What signal will President-elect Barack Obama send if his Administration, populated with Mr. Rubin’s protégés, allows this uberfixer to continue flying hither and yon on the corporate jet while taxpayers foot the bill?
Rubin, the Clinton administration treasury secretary who successfully engineered the bank deregulation that made so much of the current mess possible, was appointed to the Citi board in 1999.
Then, it seems, things began to happen.
That is, Rubin apparently undertook to test the limits of his new banking rules.
In a 4,076-word autopsy of Citigroup’s “rush to risk,” The New York Times on Sunday labeled Rubin “an architect of the bank’s strategy.”
It describes him as having “pushed to bulk up the bank’s high-growth fixed-income trading,” including risky debt instruments.
Risky is hardly the word for it – though in mid-2007, according to the newspaper, Citi brass claimed that the likelihood of subprime mortgages actually defaulting “was so tiny that they [were] excluded from their risk analysis.”
And this was afterBear Stearns imploded, telegraphing the full scope of the crisis.
The Democrat leadership in Congress saw to it that the CEOs of the Big Three automakers were paraded before a congressional committee last week to explain the mess that those management teams had wrought on the auto industry. And last month, they demanded answers from the CEOs of Lehman Brothers and AIG. These of course, were publicity stunts to be sure, to remind the American people that the Congress with the lowest approval ratings in history were looking out for them, weeks before a general election.
To be fair, both parties benefit from corporate cronyism and contributions. And President Bush deserves some blame, as he apparently obliges to every request for government assistance to the financial industry (to his credit he refused bailing out the automakers). But the evidence is clear that Citigroup’s favoritism leans leftward:
AND IF EVER THERE was a company that didn’t deserve a bailout, it’s Citigroup, a Big Government lovers’ bank that funds just about every trendy left-wing cause in America.
Long before it started drowning in red ink, the poster child for so-called corporate social responsibility was a longtime donor to left-wing pressure groups such as Jesse Jackson’s Rainbow/PUSH Coalition and Henry Paulson’s Nature Conservancy. In tax year 2003, Citigroup’s foundation gave 20 times more money to groups on the left than to groups on the right, according to Capital Research Center’s 2006 study of Fortune 100 foundation giving. (Foundation Watch, August 2006.)
Citigroup’s foundation has given a staggering $1.4 million to the alarmist World Resources Institute, as well as $509,000 to ACORN in recent years. The ACORN funding included a $500,000 grant to ACORN’s American Institute for Social Justice, which offers Saul Alinsky-style training in community organizing. Other donations to liberal groups include the Aspen Institute ($762,500), Rainbow/PUSH ($750,000), Nature Conservancy ($380,000), Rainforest Alliance ($200,000), and the Council on Foreign Relations ($50,000).
It’s no wonder that congressional Democrats so far, are living up to their cratered approval ratings. Their pathetic display of ineptitude is just as alarming as the very business leaders that they are condemning.
As the Federal government continues to dole out billions upon billions of dollars in taxpayer money without even blinking, I would ask when, if ever, Nancy Pelosi or Henry Waxman would consider calling upon Robert Rubin (or any other board member for that matter) to step forward, testify to the House Oversight Committee and explain what he was repsonsible for at Citigroup and how they had reached this tenuous financial position.
I would, but it would be futile. If companies are brought down by faulty risk management or by poor financial judgment or a flawed business model, then so be it; the market will take care of the excesses. That the Treasury is financing these incessant bailouts is another matter. Congress has a duty to ensure that the recipients are held to intense scrutiny. Liberal Democrats have no interest in doing this; they are beholden to their own special interests and self-preservation. In this case, one several of their own were at the wheel of fostering this financial mess from the beginning, and one served on the executive body of Citigroup as late as August 2008, where the utter and complete negligence of management, have resulted in tens of thousands of people losing their jobs, billions in lost capital, not to mention billions more in retirement fund losses.
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Tags: 110th Congress, Citigroup, Citigroup bailout, Larry Summers, mortgage crisis, Nancy Pelosi, President Bush, Robert Rubin, TARP, Tim Geithner, US Treasury
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