Letter from Washington — From the April 2015 issue

Saving the Whale, Again

The catastrophic incompetence of Citigroup

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In the late fall of 1970, a forty-five-foot sperm whale beached itself on the Oregon coast and expired. Local authorities, puzzling over how best to dispose of the huge rotting carcass, decided to blow it up, trusting that seabirds and other scavengers would consume any remains not carried out to sea. A half-ton of dynamite was accordingly packed around the whale and detonated, but things did not go as planned. Instead of the intended tidy dissolution, huge chunks of decaying blubber rained down far and wide, destroying property and inflicting a noxious stench throughout the landscape.

That fiasco, a financial-industry lobbyist suggested to me recently, was the perfect metaphor for Citigroup, the megabank described by one leading Wall Street analyst as “the Zelig of financial recklessness,” involved in every speculative catastrophe of the past few decades. Here, after all, was another beached leviathan perpetually threatening to die, leaving a nondisposable corpse, unless the rest of us keep it alive by pouring water over it.

Illustration by Ross MacDonald

Illustration by Ross MacDonald

Back in 2008, this potent threat elicited hurried bailouts in the trillions of dollars to save Citigroup from its latest debacle. The bank had placed enormous bets on risky derivatives that had gone very, very wrong — a prime cause, many argued, of the overall crash. In hopes of warding off a repeat disaster, Congress passed the Dodd–Frank Act, in 2010, which, among other corrective measures, banned taxpayer-insured banks from trading the more toxic varieties of derivatives, notably credit-default swaps. The law stipulated that such trades should be “pushed out” to uninsured affiliates, thereby forcing the firms to assume the risk themselves.

All the major banks chafed at this restriction, but Citigroup took the lead in overturning it. Its eagerness is best explained by the fact that while the other Wall Street behemoths are currently tapering their derivatives trading, Citi has been expanding its own. As of September 2014, its portfolio of potentially lethal financial instruments had a notional value of $70 trillion.1 So as Congress rushed to vote on a “must-pass” spending bill a few months ago, Citigroup lobbyists enlisted a pliable legislator to insert a provision eliminating the push-out rule.

1 Notional value is the “face amount” of the contract. For example, ABC Company might purchase a credit-default swap that will pay $100 million if XYZ Company defaults on its debt. The notional value of the swap is $100 million, even if the instrument itself is trading at a fraction of that amount.

Dennis Kelleher, of the financial-reform group Better Markets, pithily summarized the issue for me. “The push-out rule said you can do all the derivatives trading you want,” he noted. “You just can’t shift your losses to the American people.” By inserting its stealth provision, the banking giant ensured that “taxpayers are now on the hook for high-risk derivatives trading. That’s why Citigroup drafted it, that’s why Citigroup spent a fortune on lawyers and lobbyists and campaign contributions to make it happen.”

Congressional leaders in both parties made sure that Citigroup got its way. Republicans, with the exception of a dwindling band of Tea Party stalwarts, were enthusiastic in their support. Democrats were more sheepish, with the president himself publicly decrying the measure even as he lobbied Congress to pass the spending bill itself. Even so, the megabank’s maneuvers generated widespread outrage, and Elizabeth Warren seized the moment.

“Enough is enough!” she declared in an impassioned speech on the Senate floor, denouncing Citigroup’s coup. Comparing the bank’s power to that of the Democratic and Republican parties, she highlighted Citigroup’s “unprecedented” grip on the Obama Administration, citing seven current or recent high-level policymakers with close ties to the firm. Her roll call included Jacob Lew, a former chairman of the Office of Management and Budget — “also a Citi alum,” said Warren, “but I’m double-counting here, because now he’s the Secretary of the Treasury.”

Sheila Bair, who was chair of the Federal Deposit Insurance Corporation (FDIC) from 2006 to 2011, confirms Warren’s assessment, citing her own experiences on the inside. “They intimidate you,” she told me recently, referring to the big financial institutions. “I think this has been a big problem with this administration. You see all these former Citi people influencing government, and you’re afraid to voice opinions that are critical of them or different from their views.”

Multitrillion-dollar derivatives trades may have little direct impact on ordinary Americans, unless and until they bring down the economy, as they did in 2008. But other recent Citigroup initiatives will have more immediate effects. According to the Federal Reserve, 52 percent of Americans are unable to lay their hands on as little as $400 in an emergency. Instead, millions of people in urgent need turn to consumer-loan companies, which charge high interest rates. Among the leaders in this field is OneMain Financial, a Citigroup subsidiary, whose website declares its dedication to the penniless consumer: “Your needs. Your goals. Your dreams.™”

Intent on shedding consumer-related subsidiaries in order to concentrate on trading, Citi has for some time been planning to sell OneMain. To hit its target price of $4 billion, however, Citi needed to boost the company’s already substantial profit margin, which was up 31 percent in 2013 — and the way to do that was to persuade state legislatures to loosen restrictions on interest rates. This usurer-relief campaign has been increasingly successful, with lawmakers in Arizona, Florida, Indiana, Kentucky, Missouri, and North Carolina buying the argument that lenders such as OneMain actually “work with their customer,” as demonstrated by low default rates.

OneMain “definitely led the lobbying effort in North Carolina,” Chris Kukla, senior vice president at the Center for Responsible Lending, told me. He said the loan company was “pretty aggressive” in collecting its money. When a borrower does default, companies like OneMain “back up a truck to the house and take the furniture and the TV set.” However, the company much prefers to keep customers on the hook by repeatedly and expensively refinancing their loans — which helps to explain the low default rates.

Citi’s efforts paid off in June 2013, when the North Carolina legislature raised the ceiling on interest rates. By Kukla’s calculation, the revised law has made the situation for borrowers much worse. The interest on an average loan of about $3,000 has risen from slightly more than 20 percent to 30 percent; borrowing that money costs the company itself just three percent, at most.

OneMain is part of Citigroup thanks to a Wall Street dealmaker named Sandy Weill, who realized the stunning possibilities of this kind of business back in 1986. At the time, Weill had recently been eased out from Shearson Lehman/American Express, a financial conglomerate he had helped to build. Eager to get back in the game, he bought a Baltimore firm called Commercial Credit. In the view of Weill and his protégé, Jamie Dimon, their new acquisition was in the beneficent business of supplying “consumer finance” to “Main Street America.” Their office receptionist, Alison Falls, thought otherwise. Overhearing their conversation at work one day, she called out, “Hey, guys, this is the loan-sharking business. ‘Consumer finance’ is just a nice way to describe it.”

Falls had it right. Commercial Credit made loans to poor people at predatory interest rates. Strapped to pay off their loans, borrowers were encouraged to refinance, with added fees each time. Gail Kubiniec, who was then an assistant sales manager at the company’s branch office in Tonawanda, New York, remembers that the basic aim was to lend money to “people uneducated about credit. You could take a five-hundred-dollar loan and pack it with extra items like life insurance — that was very lucrative. Then you could roll it over with more extra items, then reroll the new loan, and the borrower would go on paying and paying and paying.”

Weill considered these practices a “platform” on which his company could grow — and indeed, Commercial Credit stock rose 40 percent in his first year. Not only did this boost his already considerable personal fortune, it enriched his loyal team, the members of which would one day reach commanding heights on Wall Street. Dimon is now the head of JPMorgan Chase. Charles Prince served first as CEO and then as chairman of Citigroup. Robert Willumstad became president of Citigroup and later headed American International Group, where he oversaw the insurer’s spectacular crash in 2008.

By 1988, Commercial Credit was generating enough profit for Weill to take over Primerica, a much bigger company involved in insurance, stockbroking, and other financial services. Three years later, however, a Forbes article reported that “the insurance operations are a can of worms,” and that Weill’s ambitions were still being underwritten by his Baltimore-based cash cow. “Primerica does have one crown jewel,” the article noted, “the company Sandy Weill started with: Commercial Credit.”

Weill bought the venerable Travelers Insurance in 1993, at which point his empire had assets of $100 billion. That same year, he acquired the Shearson Lehman brokerage house (the latest iteration of the company that had ejected him back in 1986). As deal followed deal, Weill fixed his eye on Citicorp, a huge commercial bank with billions of dollars in customer deposits. The fact that such a merger would be against the law was of no consequence. This was, after all, the Clinton–Greenspan era, when a rising tide of corruption was lifting anything on Wall Street that could float, however rotten.

The law that would have blocked the merger was the Glass–Steagall Act, passed in the depths of the Great Depression and prompted by the catastrophic speculations of none other than Citi (i.e., the National City Bank, as it was known at the time). Under the leadership of Charles “Sunshine Charley” Mitchell, the bank had vigorously embraced “cross-selling”: lending money to investors to buy shares of companies in which the bank itself held stakes. Those funds vaporized in the 1929 meltdown. “Mitchell more than any fifty men is responsible for this stock crash,” said Senator Carter Glass of Virginia soon after the market plummeted.

Glass, along with Representative Henry B. Steagall of Alabama, sponsored the eponymous law that decreed a rigid separation between commercial banks, which manage deposit accounts for individuals and businesses, and investment banks, which facilitate the buying and selling of stocks, bonds, and other financial instruments. Glass–Steagall should have barred Weill from getting his hands on Citicorp. Instead, he got provisional clearance for the merger from Alan Greenspan at the Federal Reserve. Once the deal was consummated, in 1998, Weill moved to secure a repeal of the irksome legislation — an easy task, given the enthusiastic support he received from President Bill Clinton and Treasury Secretary Robert Rubin, a former co-chair of Goldman Sachs. Glass–Steagall was duly struck down a year later. A beaming Clinton, extolling the repeal of “antiquated laws,” signed the bill with Weill at his side. By then Rubin had already become co-chairman of Citigroup, as the merged entity was called, garnering a total of $126 million in compensation over the following nine years.

“These guys are excellent at politics,” Arthur Wilmarth, a professor specializing in banking law at the George Washington University Law School, told me. “Look at how they persuaded Clinton, Greenspan, and Rubin to do their bidding. But they’re lousy at running their own business.”

Bair agrees, insisting that Citigroup was “really a cobbled-together series of acquisitions. I think they relied too much on their government connections, as opposed to managing the bank well.” Even before the merger, Citicorp had a historic record of bad bets stretching all the way back to the War of 1812: one of the bank’s founding directors made an investment in a licensed privateer, only to see the ship sail out of New York Harbor and disappear without a trace. Since then, the firm has repeatedly brought itself to the brink of ruin, making a slew of foolhardy loans to corporations during the 1970s and to developing countries during the 1980s.

Under Weill, however, the merged firm set new records for reckless gambles and fraud. It was Citigroup that helped to cook Enron’s books, disguising $4 billion worth of loans on the balance sheet as operating cash flow. Citigroup’s executives apparently understood what they were doing, but carried on regardless — the payoff being the $200 million in fees earned from the energy-trading firm before it collapsed amid bankruptcy and criminal charges. (As it turned out, crime did not pay, at least not for Citigroup’s stockholders, since the firm ended up shelling out $100 million in civil penalties to the SEC and $3.7 billion to settle claims by Enron investors.)

2 In a striking example of the law of unintended consequences, Grubman’s promotion of telecom led to huge overcapacity in the industry — which became a boon to the U.S. military after 9/11 for use in drone operations, among other things.

Equally favored as a client was the WorldCom communications conglomerate. Jack Grubman, Citi’s star telecom analyst, served as an adviser to Bernard Ebbers, WorldCom’s CEO, while relentlessly touting the company’s stock to unwitting investors. For his services, Grubman received more than $67.5 million between 1999 and 2002 — hardly excessive compensation, considering that he had helped Citigroup to generate almost $1.2 billion in fees from WorldCom and other communications firms. Subsequent events followed their normal course. WorldCom declared bankruptcy, Ebbers went to jail, Grubman paid a $15 million fine and was banned from the securities industry for life, and Citigroup settled a WorldCom investors’ suit for $2.6 billion and paid a $300 million fine to the SEC. None of Citigroup’s senior executives suffered any penalty.2

As Weill and his associates scaled the heights of New York society, contributing to such worthy causes as the refurbishment of Carnegie Hall, they retained their loan-shark business, which they renamed CitiFinancial in the wake of the big merger. For Gail Kubiniec, who continued to work for the firm as an assistant sales manager, little else changed. As the great housing bubble of the new millennium got under way, however, she noticed increased demands from management to push high-interest home mortgages.

“I felt those house values were inflated,” Kubiniec told me recently. In addition, the fact that “people didn’t always understand about making timely payments” worked to the company’s advantage. A late payment was an opportunity. “The hammer would come down,” she recalled. “You’d call them and call them to get them to come in and refinance” — at which point more fees could be tacked on to the loan. Finally, disgusted with the high-pressure tactics inflicted on poor clients, Kubiniec decided to “hang up,” as she put it.

In a devastating affidavit filed with the Federal Trade Commission in 2001, Kubiniec laid bare the sleazy practices at the heart of CitiFinancial’s business model, such as “Rocopoly Money” — quarterly bonuses for employees based on the number of existing borrowers they could lure into new loans:

I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age, and education level. If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered. The more gullible the consumer appeared, the more coverages I would try to include in the loan.

Such revelations may have been embarrassing, and moderately expensive: Citi ended up paying $240 million in penalties and legal settlements. They made little difference, however, to the company’s operations. As Kubiniec pointed out to me, these fines amounted to “pennies” compared with the firm’s consumer-loan profits — more than $4 billion between 2002 and 2003, a nice percentage of the $33 billion in overall profits hauled in by Citigroup during those years. As part of the settlement, CitiFinancial pledged to reform its abusive lending practices, but there was little change in the way the sales force marketed its loans.

Still, the fitful attention from regulatory agencies began to irritate Weill, making his life “extraordinarily difficult,” as he later recalled. In 2003, he resigned as CEO of Citigroup, bequeathing control to Prince, the lawyer he had found at the loan-shark firm in Baltimore. (Weill retained the office of chairman until 2006.)

Prince certainly had the merit of knowing a great deal about Citigroup’s checkered past. He also had a powerful supervisor in Rubin, the affable, media-friendly operator who had not only greased the wheels for the repeal of Glass–Steagall but also helped to fend off regulatory curbs on risky speculation. Now, as chairman of the Citigroup executive committee, with a $15 million annual paycheck, the former treasury secretary was ready to provide guidance on boosting earnings, profits, and, of course, executive bonuses. One colleague described Rubin as “the Wizard of Oz behind Citigroup. . . . He certainly was the guy deferred to on key strategic decisions and certain key business decisions vis-à-vis risk.”

Despite Citi’s recent troubles with Enron and WorldCom, Rubin urged Prince to dive into even riskier waters by amping up proprietary trading — using the firm’s own money to bet on market movements, often with complex financial instruments. Thanks to the 1998 merger, these bets could now be made using Citibank depositors’ funds, which were helpfully insured by the FDIC. Furthermore, in the wake of the Commodities Futures Modernization Act, a toxic piece of legislation signed by Clinton in his final days in office, riskier forms of speculation — notably credit-default swaps — were now exempt from regulation and oversight.

As the housing bubble continued to inflate, opportunities for “prop trading” were becoming more lucrative by the day, powered by subprime mortgages that CitiFinancial and other bottom-grazing lenders were selling to poor people, especially African Americans. In particular, Citi’s sales force pushed adjustable-rate mortgages, which offered borrowers a low interest rate that later adjusted upward. In the blunt words of Bair, such loans “were purposefully designed to be unaffordable, to force borrowers into a series of refinancings and the fat fees that went along with them.”

This, of course, was the Commercial Credit business model. The idea was to maneuver poor borrowers into debt bondage, now rendered even more attractive because Wall Street had devised ways to securitize the designed-to-fail subprime loans. The loans were packaged into bundles of mortgage-backed securities, which were then repackaged into collateralized debt obligations (C.D.O.’s), which were sliced into interest-bearing tranches according to their presumed credit-worthiness. These C.D.O.’s could then be chopped into ever more abstruse instruments that were increasingly divorced from reality. Asked who constituted the market for such exotic stuff, an anonymous trader in the 2009 documentary American Casino gave the only possible answer: “Idiots.”

As other banks started to see big returns from the C.D.O. bonanza, Rubin felt increased pressure to join the party. Accordingly, in early 2005, the Wizard helped Prince persuade the Citigroup board to take on much more risk. The firm’s C.D.O. production soared, doubling to $35 billion between 2005 and 2007. This river of cash had a suitably tonic effect on senior-executive bonuses. In 2006 alone, Tom Maheras, the chairman of Citigroup’s investment bank, was awarded $34 million in salary and bonuses, and his colleagues and subordinates received similarly lavish amounts.

But the pyramid of profit rested on a narrow point: the borrowers cajoled into loans they couldn’t afford by the aggressive sales teams at CitiFinancial and other subprime lenders. Well before Maheras and his associates received their bonus checks, the market had turned. Home sales peaked in the summer of 2005 before starting a steady, then steepening, slide. By spring 2007, subprime borrowers were defaulting on their loans and losing their homes to foreclosure at an accelerating rate. The bubble was bursting, but Citi’s management was in denial. “I think our performance is going to last much longer than the market turbulence does,” a defiant Prince declared in August of that year.

Eager to ensure adequate supplies of subprime debt for the C.D.O. machine, Citi took over the notoriously abusive lender Ameriquest in September 2007. As C.D.O.’s became harder to sell, the firm’s traders joined the idiots and began hoarding their own bogus creations, while relentlessly pumping out more for a market that no longer wanted them.

Others on Wall Street were waking up to what was happening. Goldman Sachs, “a ruthless shop,” in Wilmarth’s words, had reaped billions from marketing C.D.O.’s, and it continued to do so. But as early as 2006, it began to short (that is, bet against) C.D.O.’s it sold to credulous customers. Citi, meanwhile, held on blindly to its deteriorating portfolio.

Prince was forced out at the end of 2007, after the bank admitted to $10 billion in losses on subprime loans and C.D.O.’s — a figure that would balloon to $40 billion by the end of 2008. He had taken home $158 million in cash and stock during the previous four years. His replacement, a hedge-fund manager named Vikram Pandit, collected $165 million when Citi obligingly bought his fund, which went belly up a few months after the purchase.

The executive shake-up made no difference to the firm’s cratering fortunes. By November 2008, Citigroup was insolvent. But it knew where to turn for help. Bair laughed as she recalled how Rubin was lauded at the time for arranging Citi’s latest round of bailouts — “like that was his job as titular head of the organization, to make sure the government took care of them.”

Given the outcome, that might not have been such a bad business plan. Three successive bailouts at the height of the crisis pumped a total of $45 billion in taxpayer money into the firm, along with $306 billion in loan guarantees, not to mention more than $2.5 trillion in low-cost loans from the Federal Reserve. Regulators also turned a blind eye to such little matters as Citigroup’s lies to investors and the SEC, in late 2007, about the bank’s $39 billion exposure to subprime losses. “While financial fraud of this magnitude would typically be worthy of jail time, the SEC delivered minor slaps on the wrist to just two individuals,” Pam Martens, a Wall Street money manager for twenty-one years and subsequently an acerbic commentator on the industry, later wrote. “Citigroup paid the pittance of $75 million.”

The multitrillion-dollar bailouts generated public revulsion against all the major banks and were an important factor in the rise of the Tea Party. But in the view of key decision-makers, including Bair, the bailouts were largely about Citigroup. “The over-the-top generosity,” she told me, “was driven in part by the desire to help Citi and cover up its outlier status.” In other words, everyone was showered with money to distract attention from the one bankrupt institution that was seriously in need of it.

As the world of finance had grappled with the deepening crisis in the summer of 2008, the country at large remained oblivious to the drama, focusing instead on the presidential race, in which Barack Obama and John McCain were running neck and neck. On September 15, the day Lehman Brothers filed for bankruptcy, McCain was almost two points ahead in the polls. But the collapse of the nation’s fourth-largest investment bank woke voters to the reality of the crash. They swung over to the “change candidate,” handing Obama an overwhelming victory in November. Three days after the vote, the president-elect appeared onstage in Chicago to discuss his economic policy. At his side was Rubin.

Unsurprisingly, the new administration was soon well stocked with Citigroup alumni such as Jacob Lew, who was appointed chief operating officer of the State Department. He had most recently been the chief financial officer of Citi’s Alternative Investments unit, a prop-trading group that lost $509 million in the first quarter of 2008 alone. Lew’s 2006 Citi employment contract provides useful insight into at least one of the ways in which big business infiltrates government. The contract stipulated that if Lew left the company, he would lose his “guaranteed incentive and retention award,” amounting to about $1.5 million in 2008 — unless he departed in order to accept a “full-time high-level position with the United States government or regulatory body.” In other words, Citigroup was effectively paying Lew to take a government job, in which he would either direct policy or regulate Citigroup.

Joining Lew in Washington as deputy national security adviser for international economic affairs was Michael Froman, a Harvard acquaintance of Obama’s who had introduced the president to Rubin in 2004. Froman had more recently headed the Emerging Markets Strategy division at Citigroup, pocketing more than $7.4 million in 2008, even as taxpayers were pouring billions into the failing firm.

3 Geithner demurred after thinking hard about the offer — which may have been less than straightforward, since Rubin had already decided on Pandit, a move he would certainly have discussed with Weill.

Yet another friend of Citi’s was moving into an even more potent position. As head of the immensely powerful New York Federal Reserve Bank, Timothy Geithner had stood resolutely in Citi’s corner, his loyalty perhaps enhanced by a call he had received from Weill in November 2007, as the crisis was gathering speed. Prince had just been fired. “What would you think of running Citi?” Weill reportedly asked him.3 It seems fair to say that Geithner gave the firm little cause for complaint in the following months — deriding, for example, Bair’s suggestion that bankruptcy proceedings be started for its insolvent commercial bank. “Tim seemed to view his job as protecting Citigroup from me,” Bair later wrote in her memoir, “when he should have been worried about protecting the taxpayers from Citi.”

Once installed at Treasury, Geithner had the more important task of protecting Citigroup from the president of the United States, since Obama had sensibly concluded that the whale should be broken up and disposed of. “Okay, so we do Citigroup and we do it thoroughly and well,” the president told his advisers in March 2009. But only Treasury had the bureaucratic resources to dismantle such an enormous financial carcass, and Geithner showed no interest in handling the job. According to the journalist Ron Suskind, he simply ignored the president’s directive, and Obama let the matter drop.

Freed from the threat of termination, Citigroup returned to business as usual. Subprime foreclosures were still ripping through communities across the country, peaking in 2010. Cara Stretch, a foreclosure-prevention specialist at St. Ambrose, a Baltimore housing-aid center just two miles from CitiFinancial headquarters, was working overtime, helping desperate homeowners to hang on to their houses. CitiFinancial, she recalls, was “impossible to deal with,” totally resistant to loan modifications and eager only to collect or foreclose.4

4 Stretch’s clients were at least luckier than Irzen Octa, a Citibank credit card customer in Jakarta, Indonesia. Octa was beaten to death in 2011 by Citi’s collection agents when he visited a bank branch to discuss his account.

By this time most firms had abandoned the bubble-era practice of handing out shady housing loans, then securitizing and reselling them. But not CitiMortgage, the company’s other, supposedly upmarket mortgage arm. CitiMortgage carried right on selling mortgages it had every reason to believe were unlikely to be repaid — and it did so all the way through 2011. Since the private market had dried up, the firm’s most frequent customer was the Federal Housing Agency, which meant that the American taxpayer was getting it in the neck once again.

CitiMortgage had every reason to know it was moving fraudulent paper, at least as of March 2011. That was when Sherry Hunt, a quality-control officer at the company’s headquarters in O’Fallon, Missouri, explained to the H.R. department that CitiMortgage was processing and selling thousands of such loans, and had even set up a “quality rebuttal group” to ensure that as few loans as possible got rejected, however questionable. Nothing came of her complaint, so Hunt forwarded her copious documentation to the U.S. Attorney in Manhattan, who promptly brought suit against Citi. So damning was the evidence that the bank not only caved, paying $158.3 million to settle the charges, it even admitted that it had done something wrong, a rarity in such cases.

Such unseemly revelations about Citigroup, along with those of its fellow banks, evoked a vehement reaction from Wilmarth. “You had systematic fraud at the origination stage,” he told me, “then you had systematic fraud at the securitization stage, then you had systematic fraud at the foreclosure stage. At what point do we consider these institutions to have become effectively criminal enterprises?”

Naturally, no such charges were ever brought against Citigroup or its peers. Critics complained that the banks were considered “too big to jail.” Or, as Attorney General Eric Holder ponderously phrased it in March 2013, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps world economy.”

Nevertheless, there was general agreement in Washington that something had to be done to prevent another such fiasco. An initiative by Senators Sherrod Brown and Ted Kaufman to break up the big banks was speedily crushed, confirming a reflective comment from Senator Richard Durbin of Illinois: “The banks own this place.” Instead, after extensive labors, Congress assembled the 2,300-page Dodd–Frank Wall Street Reform and Consumer Protection Act — a huge revenue-spinner for the battalions of lobbyists and lawyers deployed to whittle down anything deemed hurtful to Wall Street.

They failed, however, to stop the push-out rule, which was inserted by Senator Blanche Lincoln of Arkansas. Lincoln had previously been deemed “reliable” by Wall Street, but in 2010 she was facing a tough primary battle against a union-backed opponent — hence her opportunistic swing to the left. Thereafter, attempts to delete Lincoln’s rule became an almost annual event in the congressional calendar, indicating just how important a cause this was for the banks in general, and for Citi in particular.

Pandit, having overseen an 89 percent decline in Citi’s stock price during his tenure, was shown the door in October 2012. His send-off: a paltry $6.7 million, which showed just how far things had declined for failed executives since the financial crash. His successor, Michael Corbat, had spent almost his entire career at Citigroup. Soon after his appointment as CEO, he announced that one of his goals was to “stop destroying our shareholders’ capital.” He hoped Citigroup “served a social purpose” and later added that he wanted banking to be thought of as “boring.”

The past few years, however, suggest that Citi culture has not changed much. Corbat has moved to shrink the firm’s consumer business, closing bank branches — even in important markets such as Dallas and Houston — in favor of stepping up speculative trading operations. The effort to unload OneMain, with its associated crusade on behalf of extortionate interest rates, is part of that same initiative.

So eager is Citigroup to be seen as a dynamic trading concern that it has been offering Citibank depositors the opportunity to trade in the riskiest arena of all: foreign-currency exchange. Citi FX solicits customers who have a minimum balance of $10,000 to wade into FOREX trading. It also offers them thirty-three-to-one leverage, meaning amateur traders can wager with just 3 percent down — a $330,000 bet on a $10,000 deposit. Clicking on the Citi FX “Risk Disclosure” link reveals that this is a purely in-house operation, and reminds visitors that “when you lose money trading, your national bank is making money on such trades.” In other words, the customer is betting against the house, exactly as in a casino. Pam Martens, who unearthed this shabby initiative, wonders whether a “U.S.-subsidized bank that is attempting to restore its reputation after a decade of outrageous missteps” should be enticing retail clients into currency trading, which she describes as a “surefire way to lose their money.”

While introducing customers to the wonders of FOREX may not be risky for the bank, ratcheting up derivative trades, especially when other megabanks such as JPMorgan Chase are backing off, is, as Bair expressed to me, “quite alarming.” Yet it does help to explain Citi’s determination to quash the push-out rule in spite of the terrible PR. (Rep. Kevin Yoder, the obscure Kansas Republican delegated by the lobbyists to insert Citigroup’s provision, found his Facebook page erupting with abusive comments, one of the more printable of them calling him a “pathetic waste of a slime mold.”)

Within days of killing the push-out rule, Citigroup bought the commodity- and energy-trading arm of Credit Suisse, an adventurous move in view of the ongoing collapse in global oil prices. Even more troubling is the heavy investment Citigroup, along with JPMorgan and Wells Fargo, has made in collateralized loan obligations — this decade’s C.D.O.’s, which consist of high-yield, high-risk junk bonds sliced into tranches. A high proportion of such junk was issued by energy firms and snapped up in massive quantities by Wall Street largely on the back of the oil-shale boom, now deflating at a precipitous rate. “I think those bonds are already on the edge of the cliff,” says Martens.

Watch out for falling blubber.

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