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With Subprime Citigroup at Trough, What Would Rubin's Geithner Do?

Byline: Matthew R. Lee of Inner City Press on Wall Street: News Analysis

NEW YORK, November 24, updated -- The illegal combination of Citicorp and Travelers in 1998 heralded the near-total deregulation of U.S. financial markets. The expansion of predatory lending into the banking system by Sandy Weill, Chuck Prince and Robert Rubin was allowed and even cheered by the Federal Reserve and Treasury Department, which on November 24 issued the worst and most undeserved bailout to date, assuming the risk on $306 billion of Citigroup's loan slop.

   While tens of thousands of lower level employees lose their jobs, Citi's top management including Vikram Pandit and Robert Rubin keep theirs. It's all in a weekend's work for the Fed's Ben Bernanke and Treasury's Hank Paulson. Would Barack Obama's handpicked successor Timothy Geithner have done different? It's doubtful, since he is a protege of subprime Bob Rubin. Impunity for financial crimes is not, this breaking view has it, a change to be believed in.

  The bailout reflects badly on the regulators too. Less than two months ago, the agencies tried to give Citigroup the whole of Wachovia, portraying Citi as a solid savior. Since then, the regulators for example turned down National City for any of the TARP funds, driving it into the hands of PNC from which the regulators will now buy NCC's bad assets. By contrasts, Citigroup now gets its second serving of TARP, $20 billion on top of the supposedly maximum $25 billion. Will even this be enough? We doubt it.

   Bob Rubin was asked if he and Citi made any mistakes. Paralleling a response by George Bush to the same question, Rubin said "I’ve thought a lot about tha... in the context of the facts as I knew them and my role, I’m inclined to think probably not." Earlier, Inner City Press had asked Rubin what he had done to reign in Citigroup's predatory lending. "That's not under my aegis,"he replied. Rubin has learned nothing, and his protege is being put in charge of Treasury. Beyond the coming conflict of interest, appropriate Congressional questioning might well disqualify Tim Geithner.

Citigroup's Pandit, Rubin and other bandits not shown

   Bronx-based Inner City Press / Fair Finance Watch has commented to the Fed since 1998 about the dangers posed by Citigroup. Chuck Prince's response was to ask, "What do you want?" When told, a clean-up of Citi's securitization of predatory loans, Prince said that Citi was like the pipes through which such practices flow. This then is the world's most expensive plumbing job, one for which their is no oversight on billing.

  On September 22, Inner City Press asked Federal Reserve chairman Ben Bernanke on what legal basis he had rubber-stamped Goldman Sachs' and Morgan Stanley's applications to become bank holding companies. Bernanke scoffed that legal authority existed, to talk to the Fed's top lawyer, who was in the room. He in turn pointed to a 2 a.m. press release which mentioned emergency and that the transactions would be "consummated immediately." Thus, no court could review the Fed's decision to exclude the public. Any case filed for review would be moot. The same holds true of this bailout.  The heights of crony capitalism are being reached, for now with no end in sight.

Update of 10:40 a.m. -- President Bush, stopping to announce the bailout to the press, said that "Citicorp" is being bailed out. Of course, Citicorp no longer exists; it's CitiGROUP, the successor to Travelers and Commercial Credit, that is getting the bailout. Bush took no question, but said he'd told Obama. And what did Obama and his economic advisers say?

Watch this site, and this Oct. 2 debate, on the bailout and the poor

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Click here for a Reuters AlertNet piece by this correspondent about Uganda's Lord's Resistance Army. Click here for an earlier Reuters AlertNet piece about the Somali National Reconciliation Congress, and the UN's $200,000 contribution from an undefined trust fund.  Video Analysis here

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