Robert Rubin, former Chairman, Director, and Senior Counselor at Citigroup, and Charles Prince, former Citigroup Chairman and CEO, are currently testifying before a bipartisan congressional commission on the financial crisis. Citigroup is interesting because it was particularly addicted to exposing itself to the subprime and derivative pseudo-markets. Rubin and Prince did nothing, and Citigroup ended up requiring $45 billion in taxpayer bailouts. Mr. Prince at least had the shame to resign in 2007. Rubin, in his testimony, had the nerve to downplay his personal knowledge of or involvement in the absurd bets his company was making, even though Prince has said that the two talked three or four times a day:
In his remarks, Mr. Rubin distanced himself from Citigroup’s troubles. As he has for months, he refers to his employment contract — which explicitly gave him a nonmanagerial role at Citi — and said that he learned of the bank’s large exposure to certain complex mortgage-related assets only in the fall of 2007.
Rubin, however, played a critical role in 2004-2005 in Citigroup’s decision to take on more risk to boost flagging profits. And Mr. Rubin, of course, personally did very, very well in his “nonmanagerial” role:
But [Rubin's] remarks did not address the more than $100 million that he was paid for his role as senior advisor at Citi — an amount that rankles many bank employees who have seen their personal fortunes evaporate after the share price collapsed. Nor does he address why the board bestowed a discretionary bonus on Mr. Prince — even as the extent of Citigroup’s losses was becoming known.
It was actually $126 million, over eight years. And god knows how much bonus money Rubin made during his 25 years at Goldman Sachs, where he honed his unique talent for realizing short-term profits while ignoring long-term risk. His entire career consists of making a personal fortune on decisions that led inexorably to the future misery of millions of people, and to society having to bail out his failed company. Job well done, Bob.
The crux of the problem: “Citigroup bankers and risk officers told the panel yesterday they relied on statistical models that failed to predict the severity of the crisis.” No shit.
I’m struck by the fact that we can hide behind the statistical models,” said commission member John Thompson, who’s chairman of Symantec Corp. “Where was the intuitive leadership judgment that said something may not be right in this market?
These guys represent every single thing that is wrong with our financial system. I am watching their testimony on C-Span right now: they both impressively manage to combine the height of contrition with the height of blame deflection: Few could have foreseen this crisis; the downside systemic risk was way more than we ever imagined; Sure we put billions of assets off our balance sheets, but everyone else did too; It wasn’t me, I barely worked there; Our chief risk manager was extremely well-qualified for his job; The crap we were buying was all triple-A rated!; Our internal processes were stellar; All of us acted in really good faith as we aimed the plane into the mountain…and on and on.
Their arguments essentially boil down to two points: “Don’t hate the player, hate the game.” And, “Sure I was drunk off my ass, but it was a frat party!” These are, needless to say, deeply adolescent arguments. And you’ll be comforted to know that they both have plenty of ideas on how to fix the system that they and their ilk exploited for decades.
They are both very sad that this has all happened. There are plenty of apologies, yet there is no punishment, no accountability. Mr. Rubin is gearing up to relaunch his Washington-based “economic policy group”, and he apparently still has the ear of the president. And Rubin’s accumulated bonuses will afford him a lovely retirement with his private jet in St. Barts. Claw it back. All of it. It’s not unprecedented.