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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.


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