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Citigroup: The Blind Leading the Blind

Posted by Larry Doyle on April 7, 2010 1:28 PM |

When in doubt, hire a consultant.

When something fails, blame the consultant.

Shirk responsibility and pass the buck.

When will somebody with a set of balls on Wall Street stand up and take responsibility for the massive failures of risk management and business execution which led to the economic crisis which brought our country to its knees? 

All too often we have heard that the economic crisis stemmed from factors outside of executives’ controls. Will the Financial Crisis Inquiry Commission be able to pinpoint individuals and business units willing to accept responsibility for bringing down Wall Street and, in turn, our economy? Well, it won’t be today as former ‘masters of the universe’ at Citigroup provided the “ole, ole, ole” approach to the commission.

Bloomberg provides highlights of this testimony in writing, Citigroup Consultants Urged CDO Drive, Maheras Says:

Citigroup Inc., the bank 27 percent owned by the U.S. government, began its foray into money-losing collateralized debt obligations on the recommendation of outside consultants and failed to see the risks, said the bank’s former trading chief, Thomas Maheras.

The consultants were hired by “our senior-most management” and in 2005 conducted a “careful study,” Maheras said in prepared testimony submitted in advance of a hearing today before the Financial Crisis Inquiry Commission, which is looking into the causes of the 2007 collapse of the subprime mortgage market and ensuing bank bailouts. The consultants weren’t named.

Surprise, surprise. Blame the good old, unnamed consultants. Well, internally at Citigroup one individual whom we need to hear from is Robert Rubin. He will provide testimony tomorrow. Think he’ll blame the consultants, as well?

“Even in the summer and fall of 2007, I continued to believe, based upon what I understood from the experts in the business, that the bank’s super-senior CDO holdings were safe,” Maheras said.

The experts in the business? How did Mr. Maheras become the head of Citigroup’s bond operation if he was not an expert himself? Pass the buck. How courageous.

The collateralized debt obligations, created by repackaging bonds that in turn were created from home loans, carried triple- A ratings and were deemed “super-safe,” Maheras said. The so- called super-senior holdings, the highest-rated of all CDO bonds, plunged as subprime-mortgage defaults surged and contributed to the bank’s record $28 billion net loss in 2008.

Citigroup had to get a $45 billion taxpayer bailout in late 2008. Last year, the U.S. Treasury Department converted $25 billion of the funds into 7.7 billion common shares in the bank, and Citigroup repaid the remaining $20 billion.

To be perfectly frank, after reading this review of Mr. Maheras’ testimony, I could only imagine that the popcorn vendor and man selling balloons were outside while this circus played out.

The circus inside Citigroup only cost the American taxpayer mere tens of billions of dollars.

Blame the consultants.

How pathetic.


  • phil trupp

    Having spoken with Citi bond traders, among others, there’s no question that even the so-called super-seniors were peppered with Alt-A and other time bombs. Lloyd Blankfein wasn’t the only one who sold subprime to clients and then bet against the very products he was selling. In reality the entire trading architecture is rigged, but then that’s another long, infuriating story.

  • jim mack

    Your missing a big point in all of this. Almost all of wall street missed this. Its part of capitalism you have excesses but ill still take it over socialism any day.

    And the taxpayer is making money on the Citi deal. I am sick of hearing people who dont know what they are talking about saying the taxpayer lost money in all of this. The Government made over 7 billion dollars on its equity investment in Citi alone.

    Tom Maheras is one of the brightest minds on wall street over the last 25 years. Being at the top of Citi during the biggest financial meltdown that most did not see coming does not take away from all he did prior.

    Its a joke how many people can write NOW about what happened then. Hindsight is trully 20/20 and lets please stop looking for blame and move forward. This was a problem that very few saw ever materializing.

    Jim Mack

    • LD

      Almost all of Wall Street missed it? Did Goldman miss it? Did Jamie Dimon and JP Morgan miss it? Do those firms work on Wall Street? I do not hold them up as paragons of virtue by any means. Anything but.

      I have also called out others who took the “national” risks at other institutions. You have missed those commentaries. I’ve also called out the regulators, especially at FINRA, who were negligent – if not complicit – while these “national” risks were being put on the books, or I should say ‘off the books.’

      Part of capitalism is taking so much risk that it brings the bank and our country to its knees? These super-senior bonds were trading at L +30 to 35 or thereabouts and they put so many of them on in their off balance sheet SIVs to bring the house down and the country down. That’s not capitalism.

      The experts in Citi had no appreciation that they were putting on a massive housing bet with plenty of loans which were poorly underwritten. That is piss poor risk management driven by greed. Nothing more nothing less.

      I would have praised Mr. Maheras if he had the stones to stand in front of FCIC and say very simply, ‘we bet the house and were wrong. We were facilitated by regulators who had no idea what we were doing.”

      Move forward? You are taking the same Mark McGwire (“I’m not here to talk about the past”) approach that Mary Schapiro would like to take.

      American taxpayers are pissed off as they’re stuck with a bill that our kids kids will have problems paying and want answers.

      Mr. Maheras provided very few. He does not get a pass.

      • LD

        Mr. Mack,

        I respect you for trying to stand up for Mr. Maheras, but do you give any credence to the testimony of another Citi representative today, that being Richard Bowen?

        I wonder how you might feel about your remarks regarding Mr. Maheras in light of the incriminating testimony provided by Mr. Bowen, which I also highlighted in writing: Citi’s Richard Bowen Exposes Wall Street’s ‘Garbage In, Garbage Out”

  • George

    You know what we have here? Free speech! You want to keep it then stand up and fight for your children, grandchildren and friends. Stand up and take back America before it’s too late. Do not be fooled. Vote in November to stop all of this nonsense including the spending or this disagreement you two knowlegeable strong will Americans may no longer have a free place to disagree.

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