Wednesday, March 26, 2008

Citibank-Travelers Merger & Rubin's Board Post

A funny thing happened the other day while I was talking with my friend and sometimes business partner, B.

In discussing the current commercial bank troubles, he noted something about Citigroup that I honestly had failed to notice.

As this article confirms, the Citi-Travelers merger, fomented by then-Travelers CEO Sandy Weill, occurred in 1998. At the time, Bob Rubin was Clinton's Treasury Secretary.

Approving the merger required the effective, de facto dismantling of Glass Steagall, the law prohibiting commercial and investment banking from existing in one institution. The post-1929 crash legislation was intended to prevent the practice of commercial banks originating questionable securities, then stuffing them into investor accounts or other vehicles which they would then market off of their balance sheets.

Is it not odd that, having carefully failed to raise any warning flags about this merger, Rubin subsequently became Chairman of Citigroup's board?

And not a notional chairman. Rather, Rubin is among the three most highly-paid executives at Citi.

Talk about conflict of interest!

It's not hard to connect the dots on this one, is it?

Rubin, as Treasury Secretary, remains silent on the most significant change in financial service regulation since the 1930s, allowing the Citi-Travelers merger to sail through Federal government scrutiny without trouble. It's not certain, but one can easily imagine Rubin cajoling various other parties, such as the Fed, DOJ, and anyone else with a voice, to go along with the move.

Upon leaving Treasury, Rubin becomes Chairman of the newly combined universal bank, Citigroup. Rubin is paid far more than this typically figurehead post commands.

Seven years later, Citigroup records record losses after five years of moribund management under Weill's successor, Chuck Prince. Rubin has remained inactive in addressing Prince's failures for the half decade during which the bank languishes.

Isn't it funny how nobody in Congress has pointed a finger at Rubin's involvement in this mess? If anyone could have called a halt to Weill's rush to merge the two firms and destroy a decades-old, effective bar to the practices which, once again, led to our current credit market troubles, Rubin was probably the guy.

With his Goldman Sachs pedigree and influence over the President whom he served at Treasury, Just a few comments from Rubin would have stopped the merger cold.

Instead, Rubin's inaction led directly to the financial excesses we see today in the mortgage and securities markets.

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