NY Times: Citigroup Pays for a Rush to Risk

[marmar]

By ERIC DASH and JULIE CRESWELL
Published: November 22, 2008


“Our job is to set a tone at the top to incent people to do the right thing and to set up safety nets to catch people who make mistakes or do the wrong thing and correct those as quickly as possible. And it is working. It is working.”

- Charles O. Prince III, Citigroup’s chief executive, in 2006


In September 2007, with Wall Street confronting a crisis caused by too many souring mortgages, Citigroup executives gathered in a wood-paneled library to assess their own well-being.

There, Citigroup’s chief executive, Charles O. Prince III, learned for the first time that the bank owned about $43 billion in mortgage-related assets. He asked Thomas G. Maheras, who oversaw trading at the bank, whether everything was O.K.

Mr. Maheras told his boss that no big losses were looming, according to people briefed on the meeting who would speak only on the condition that they not be named.

For months, Mr. Maheras’s reassurances to others at Citigroup had quieted internal concerns about the bank’s vulnerabilities. But this time, a risk-management team was dispatched to more rigorously examine Citigroup’s huge mortgage-related holdings. They were too late, however: within several weeks, Citigroup would announce billions of dollars in losses.

Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses. .......(more)

The complete piece is at: http://www.nytimes.com/2008/11/23/business/23citi.html?_r=2&hp

[Tandalayo_Scheisskopf]

1. Is "incent" a real word?

Or is that just something he made up over the crudite' course in the executive dining room one lunchtime in the past?

[tblue37]

3. No, it's not. nt

[marmar]

6. It's in the Useless Overpaid Executive's Dictionary......

Somewhere between "Golden Parachute" and "Private Plane"

[tblue37]

2. This is the part that troubles me most::

<SNIP>
All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.

While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.

The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser. Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.


When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another <emphasis added>.
<SNIP>

It's always the damned foxes guarding the henhouse.

[sunnystarr]

7. That bothered me the most too ...

Rubin needs to be dumped like yesterday's garbage.

[tblue37]

4. Oh, and K&R. This one needs to be seen. nt

[marmar]

5. Afternoon kickeroo.....

:kick: