Citigroup is the Wall Street mega bank that forced the repeal of the Glass-Steagall Act in 1999; blew itself up as a result of the repeal in 2008; was propped back up with the largest taxpayer bailout in the history of the world even though it was insolvent and didn’t qualify for a bailout; has now written its own legislation to de-regulate itself; got the President of the United States to lobby for its passage; and received an up vote from both houses of Congress in less than a week.
And there is one more thing you should know at the outset about Citigroup: it didn’t just have a hand in bringing the country to its knees in 2008; it was a key participant in the 1929 collapse under the moniker National City Bank. Both the U.S. Senate’s investigation of the collapse of the financial system in 1929 and the Financial Crisis Inquiry Commission (FCIC) that investigated the 2008 collapse cited this bank as a key culprit.
The FCIC wrote:
“we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup’s excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did notToo often, they lacked the political will in a political and ideological environment that constrained it as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.”
The words above from the FCIC also perfectly describe what just happened in Congress and the Oval Office. Citigroup snuck its deregulation legislation into the $1.1 trillion Cromnibus spending bill that will keep the government running through next September. (It’s called Cromnibus because it’s part Continuing Resolution or CR and part omnibus spending bill.) Just as the FCIC wrote about the reasons for the financial collapse, Citigroup was able to pass this outrageous deregulation legislation because the majority of Congress and the President “lacked the political will” and the “fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.”
What Citigroup has now done with the willing participation of Congress and the President is to set the country up for the next financial collapse in which it appears destined to play another starring role, seeing that the Fed gave it a failing grade on its stress test this year. The legislation that was just passed by Congress allows Citigroup and other Wall Street banks to keep their riskiest assets interest rate swaps and other derivatives in the banking unit that is backstopped with FDIC deposit insurance, which is, in turn, backstopped by the U.S. taxpayer, thus ensuring another bailout of Citigroup if it blows itself up once again from soured derivative bets.
According to Bloomberg data, over the past five years when Dodd-Frank financial reform was supposed to be making these mega banks safer Citigroup has increased the notional amount of derivatives on its books by 69 percent. As of this past June, according to Bloomberg, “Citigroup had $62 trillion of open contracts, up from $37 trillion in June 2009.” That’s trillion with a “t.”
How much might Citigroup need from the taxpayer if it blows up again? According to the General Accountability Office, Citigroup received more bailout assistance than any other bank in the last collapse. On October 28, 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds. Less than a month later it was back with hat in hand and received another $20 billion. But its finances were so shaky that it simultaneously needed another $306 billion in government asset guarantees. And on top of all that, the New York Fed was secretly funneling it over $2 trillion in emergency loans at interest rates frequently below 1 percent.
This is how we described Citigroup’s 2008 meltdown in an article on November 24, 2008:
“Citigroup’s five-day death spiral last week was surreal. I know 20-something newlyweds who have better financial backup plans than this global banking giant. On Monday came the Town Hall meeting with employees to announce the sacking of 52,000 workers. (Aren’t Town Hall meetings supposed to instill confidence?) On Tuesday came the announcement of Citigroup losing 53 per cent of an internal hedge fund’s money in a month and bringing $17 billion of assets that had been hiding out in the Cayman Islands back onto its balance sheet. Wednesday brought the cheery news that a law firm was alleging that Citigroup peddled something called the MAT Five Fund as ‘safe’ and ‘secure’ only to watch it lose 80 per cent of its value. On Thursday, Saudi Prince Walid bin Talal, from that visionary country that won’t let women drive cars, stepped forward to reassure us that Citigroup is ‘undervalued’ and he was buying more shares. Not having any Princes of our own, we tend to associate them with fairytales. The next day the stock dropped another 20 percent with 1.02 billion shares changing hands. It closed at $3.77.
“Altogether, the stock lost 60 per cent last week and 87 percent this year. The company’s market value has now fallen from more than $250 billion in 2006 to $20.5 billion on Friday, November 21, 2008. That’s $4.5 billion less than Citigroup owes taxpayers from the U.S. Treasury’s bailout program.”
Not everyone has caved under political pressure from Wall Street. Senator Elizabeth Warren delivered three impassioned speeches on the Senate floor last week, culminatingin a Friday speechthat many are calling an historic battle cry to a complacent nation. Warren explained how Citigroup pulled off its coup, stating:
“Mr. President, I’m back on the floor to talk about a dangerous provision that was slipped into a must-pass spending bill at the last minute to benefit Wall Street. This provision would repeal a rule called, and I’m quoting the title of the rule, “Prohibition Against Federal Government Bailouts of Swaps Entities.”
“Mr. President, in recent years, many Wall Street institutions have exerted extraordinary influence in Washington’s corridors of power, but Citigroup has risen above the others. Its grip over economic policymaking in the executive branch is unprecedented. Consider a few examples:
“Three of the last four Treasury Secretaries under Democratic presidents have had close Citigroup ties. The fourth was offered the CEO position at Citigroup, but turned it down.
“The Vice Chair of the Federal Reserve system is a Citigroup alum.
“The Undersecretary for International Affairs at Treasury is a Citigroup alum.
“The U.S. Trade Representative and the person nominated to be his deputy who is currently an assistant secretary at Treasury are Citigroup alums.
“A recent chairman of the National Economic Council at the White House was a Citigroup alum.
“Another recent Chairman of the Office of Management and Budget went to Citigroup immediately after leaving the White House.
“Another recent Chairman of the Office of Management and Budget is also a Citi alum but I’m double counting here because now he’s the Secretary of the Treasury.
“That’s a lot of powerful people, all from one bank. But they aren’t Citigroup’s only source of power. Over the years, the company has spent millions of dollars on lobbying Congress and funding the political campaigns of its friends in the House and the Senate.
“Citigroup has also spent millions trying to influence the political process in ways that are far more subtle and hidden from public view. Last year, I wrote Citigroup and other big banks a letter asking them to disclose the amount of shareholder money they have been diverting to think tanks to influence public policy. Citigroup’s response to my letter? Stonewalling.A year has gone by, and Citigroup didn’t even acknowledge receiving the letter”
Anticipating public outrage and potential voter backlash in 2016, incoming Majority Leader Mitch McConnell inserted another provision into the Cromnibus that allows individuals to give almost 10 times as much money to political party committees as allowed under current law ensuring that only the super rich continue to run Washington.
Senator Bernie Sanders of Vermont was outraged, issuing a press release that stated: “Instead of cracking down on Wall Street CEOs whose greed and illegal behavior plunged the country into a terrible recession, this bill allows too-big-to-fail banks to make the same risky bets on derivatives that led to the largest taxpayer bailout in history and nearly destroyed the economy. Instead of cutting back on the ability of billionaires to buy elections, this bill outrageously gives the wealthy even more power over the political process.”
If all of this is not enough to propel Americans into the streets in mass protests, perhaps the history of how the coddled Citigroup handles the money of its investors and shareholders will stir the pot. Below is just a sampling:
December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.
February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.
July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.
October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product. Citigroup had selected approximately half the assets and was betting they would decline in value.
February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.
August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders’ knowledge that it had far greater exposure to subprime debt than it was reporting.
July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.
September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.
December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.
July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
This article was originally posted on Wall Street on Parade.