Accountability, Citigroup, and Robert Rubin

Since the U.S. government took over Citigroup over the weekend the call of taxpayers to point fingers and place the blame where it is due is becoming louder. It goes beyond politics at this point and the real players in the destruction of the banking industry are coming out of the wood work. A recent article in the New York Times points the finger at Robert Rubin for the downfall of Citigroup and his allowing the company to go 40-1 on leverage. He is being credited as the architect of the present financial crisis when, as Secretary of the Treasury, along with Alan Greenspan, he opposed the regulation of derivatives when proposed by the head of the Commodity Futures Trading Commission. Overexposure to derivatives such as Credit Default Swaps was essentially the cause of the failure of Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, and Washington Mutual. In November of 1999 Alan Greenspan and Robert Rubin recommended that Congress permanently strip the Commodity Futures Trading Commission of regulatory authority over derivatives. This was accepted. Charlie Gasparino, on-air editor at CNBC, says Rubin was the chief advocate at Citigroup to over leverage the company and that the board of directors and Bob Rubin hold the largest amount of blame for mismanaging the company. The most concerning part of all of this is that Rubin is now one of the top economic advisors to Barrak Obama. If Alan Greenspan, head of the federal reserve with the power to adjust interest rates, and Robert Rubin were joined at the hip on deregulation of the derivatives industry, and Bill Clinton, days before Rubin departed as Treasury Secretary, repealed the Glass-Steagall Act (allowing the supermerger between Travelers and Citi just in time for Rubin to join the company 4 months later), I would question the subsequent build up of leverage. When a company builds up incredible amounts of leverage in the way that Citi did, it means that management is making the company extremely large and taking a large share for themselves while taking no interest in the company shareholders. This was also the case at AIG. The only thing Alan Greenspan could say in front of congress was, "I still don't fully understand why it happened", while admitting, with 3 other regulators, that deregulation was wrong and a mistake. Poor management is not just a risk to these companies, it is a risk to the entire nation.

http://en.wikipedia.org/wiki/Robert_Rubin