Amen. What is it they do that commands such high salaries? Are they there to pose for the color brochures? I have so little sympathy for Citigroup. They were in the one business that is allowed to steal from consumers by taking money at almost zero interest, and charging fees and interest at exorbitant rates while investing in inside deals they made themselves. It is incredible that they could fail. You would have to almost want to fail with the deck stacked so heavily in your favor. The only explanation for such egregious misappropriation of resources is stupidity or banditry.

Hilzoy,

I'm not so sure you should dismiss possibility #3 as quickly as you do. It doesn't seem implausible to me that Rubin/Pandit could have made choices that would have been good for Citigroup had the financial crisis not occurred, but that the crisis rendered those decisions unpalatable and it was too late at that point to undo them.

Obviously, exonerating both completely is probably equally unfair - and everyone seems to be scurrying to cover their tracks as unpleasantly as possible. But they probably don't deserve all the opprobium either.

Well stated, Hilzoy.

It's something I've been ranting about for a while where noone is taking responsibility for their decisions.

Of course, it arises amongst the administration and spreads downwards. Has anyone taken any blame? And now amongst the players of this very unpretty game.

As I gather, in the UK, banks taking government support have had their CEOs jump with no parachute. In the US, except for AIG, I've yet to hear of professional accountability.

What's with that? Millions of dollars but no responsibility?

BS.

I am now 100 % in favor of class warfare. I want revenge. I want my money back. The rich have all the money, and I want it back.

I want a 66 % tax on incomes of 1 million or more, and 75 % on incomes of 5 million. In addition, if you are the CEO, CIO or other top management in a public company, I want an income ceiling of 20 x lowest paid worker.

It's time to get the money back.

It's absurd to think there is nothing they could have done differently that would have changed the current disaster of Citigroup. Even more ridiculous is their acting like total victims as if failure was fated and unavoidable. Asking "what would have happened if you had done this instead of that" is a discussion they avoid at all cost.

Notice they lost nothing personally and would give back nothing they have gained from their management. The ship may be sinking but the gold masts and sails are still mine to keep, right? If there were personal consequences to suffer then Citigroup would be in an entirely different state of being.

Well, you do know that nothing Herbert Hoover could have decided would have made any difference regarding the Great Depression. Hoover was completely innocent. It was all bigger than the White House and the Executive branch of the government.

And nothing Hitler could have decided regarding the Second World War. After all, how was HE to know that Britain and France would declare war over Poland? The whole thing was just got bigger than Germany could deal with, overnight, during September, 1939. (Oh? Germany kicked ass for the next 3-1/2 years? Well, it DID eventually get too big for them...)

And, of course, the really serious one: There was nothing George W Bush could have done about 9/11. Terrorism had simply grown too big for the U.S. military, the CIA, the FBI and the NSA to handle - all four or five hundred of them in Ak Qaeda. What was a President to do?

So, they all threw/throw up their hands and shrugged/shrug, and asked/ask, "What me, worry?"

It's the American way!

Not only could somebody have seen the subprime debacle coming and the financial crash that followed, many people did. These would include Nouriel Roubini, Peter Schiff, Jimmy Rogers, Marc Faber and many, many others. The problem was that Robert Rubin and his buddies on Wall Street were making too much money on the scam to pull the plug. If anyone had followed the advice and warnings of those predicting disaster, the investment banking industry would have been forced to cash in their chips and fold the game.

They knew that with Hank Paulson in charge, they wouldn't be punished when the shit hit the fan. And they were right. Paulson and Bernanke have thrown trillions of dollars at the banks, underwritten everything, and guaranteed that all their bad borrowing would never have to be paid back. In return, they haven't loaned out any of the billions they've been given to help out businesses and consumers and Paulson's not going to make them.

I'm very distressed that Obama chose two Rubin proteges--Geithner and Summers--to lead his economic team. Not an auspicious beginning for Main Street, but Wall Street couldn't be happier. No wonder the market rallied 500 pts. when Obama's selection was announced.

Not the kind of change I was hoping for when I voted for him.

Excellent post, Hilzoy.

Rubin and Pandit are arguing against a straw man. Their argument is that they are being blamed because they failed to control the overall economic system, something that is obviously impossible.

That's not what they failed to do. They failed to perform the first function of every successful banker - understand and control the risk their banks was accepting so that they did not lose everything with the risk inevitably went against them. What's clear is they they were unaware of the risks they were accepting. That's their failure, and it has destroyed better bankers than either of them.

It's not too surprising that they were unaware of the risks they were accepting. Citgroup was a merger of a number of different organizations, and has never been effectively reorganized into a single organization with a consistent culture. The guys at the top of Citi apparently are so focused on financial issues that they never recognized that their organization was sociologically unable to deal with the various risks they were trying to play with. They let traders dominate risk managers, for example.

It's a common failing in managers in all types of business. They focus on factors that can be reported quantitatively and ignore the qualitative factors that are less easily measured but in fact are sometimes even more significant (and dangerous) than the more easily measured factors.

The things they know they are very, very good at. The problem is that there are a number of things that matter greatly but that they didn't know that they were unaware of. In a well-organized company there will be individuals and departments, working towards the same corporate strategic goals, who are aware of those other factors and who will bring them to the attention to top management when critical decisions are being made.

If the organization does not provide that kind of support and the top management is unaware that it is absent, then you get the kind of clueless excuses that Rubin and Pandit have provided. They were blindsided by reality and are unaware of what they could have done to avoid being blindsided.

Like the FBI before 9/11, someone in Citigroup had the information that Rubin and Pandit needed, but there were no channels of communication in the organization available to get that information to the decision-makers who needed it.

As a result, they failed to perform the first function of every successful banker. They failed to adequately understand and control the risk their bank was accepting

Devildog,

You said "The problem was that Robert Rubin and his buddies on Wall Street were making too much money on the scam to pull the plug. If anyone had followed the advice and warnings of those predicting disaster, the investment banking industry would have been forced to cash in their chips and fold the game."

I agree. One thing that the bankers here in Fort Worth/Dallas agree on is that the well-managed mostly local banks here are doing quite well, and expect to continue to do well. The financial problems belong to the large centralized banks with national and international exposure along with the banks that dived into mortgages and loans to real estate builders and accepted too much total risk because the money in those lines of business was so good.

Calls to mind the Press' claim that they did nothing wrong, and were not really lacking in their coverage of the reasons for invading Iraq.

Robert Rubin, Alan Greenspan, and all the "experts" who claim they couldn't have seen this coming are either liars, or simply not experts. I'm just a construction worker with a high school education. I predicted this in 2000, when I was reading about all the non verified asset claim, variable rate home mortgages that were being written. It was OBVIOUS, then, that things were going to blow up in 2004, or 2005, when all these flaky loans reset. what were the "experts" reading, Mad Magazine?

Rick B, Good post, with regard to management issues, organizational behavior and corporate culture. However, I have to take issue with you on a couple of points.

First, they weren't even good at the quantitative stuff. There's ample evidence they knew they were not only engaging in risky behavior but borrowing huge sums of money to engage in as much of it as possible. "Liars Poker" by Michael Lewis is a good primer in how these institutions operated.

Second, they were aware of the inevitable crash, but chose to take a path of willful disregard of expert analysis.

They did what they did with full knowledge of the downside and they did it anyway. Now, they would like the world to believe otherwise. But it really doesn't matter. They got their money. They won't be held accountable. And Rubin will continue to hold prestige, power and influence in the Obama Administration. Too bad.

I take it the compensation they receive is also entirely divorced from reality, then?

Here's my rule: If you are a private banker, and you need the Federal government to inject cash to save your bank, you have, ipso facto, failed to do your job properly. The current economic conditions could have been, and were, imaginable, and there are many other banks that are NOT in need of the US Treasury's largess.

If Rubin and Pandit don't think they've done anything wrong, then I guess they don't need any of my tax money. Good luck to them.

Funny thing, Alaska's been the butt of everyone's humor lately, but our state banks and local credit unions are very solvent right now, and are actually competing to loan money...

Fact is that in the early and mid 80's there was a housing market crash from elevated values, companies leveraging their oil money (that then ran out) etc. Sort of a microcosm of what's happening in the world...

Some targeted regulation and deficit spending did the trick. The CBR was almost spent to nothing before oil prices spiked a few years back, but the local banks saw what everyone was doing down south and avoided it like the plague. Once was enough.

Look, the probably tried to do better, but a little voice told them:

No one expects the Second Great Depression!

I'm with POed Lib @ 1:18 -- tax the bastards, and the rest of their income-band with them.

Thanks for fixing the blockquotes/RSS issue, Hilzoy.

Rubin: "Nobody was prepared for this." CEOs of the Big Three Auto Companies: "We didn't see this coming," Bush administration regarding Katrina, "No one could have predicted the levees would fail," Condi Rice: "No one could have imagined terrorists flying airplanes into office buildings."

Mr. Rubin has been defending indefensible actions for a while now. If you can stomach it, I suggest reading the memoir he wrote after leaving the Clinton administration.

http://www.amazon.com/review/R2ROM90QYLOGS0/ref=cm_cr_rdp_perm

Rubin: "Nobody was prepared for this." CEOs of the Big Three Auto Companies: "We didn't see this coming," Bush administration regarding Katrina, "No one could have predicted the levees would fail," Condi Rice: "No one could have imagined terrorists flying airplanes into office buildings."
Posted by: Impeachcheneythenbush on November 29, 2008 at 8:50 AM

And we Americans continue to buy these excuses? Why?

Nobody is responsible for anything. That Rubin has the balls to give himself a pass tells more about the decline of American leadership than anything else.

This started at the top when, despite the fact that NINJA loans, no asset loans, stated income loans, etc. were a very bad idea as a basis for mortgages, there wasn't so much as a whisper against them from anyone in authority. Without preamble, we were told that the whole economy was suddenly jeopardized by "toxic assets." Apparently no one was responsible; not the people who wrote the loans, not the people who took them, not the financial geniuses who rolled them up into gigantic financial instruments and then borrowed up to forty times their stated value and certainly not the rating agencies who guaranteed the soundness of paper they didn't understand. Nope, it just happened.
It's just another example of Bush's passive voice mantra, "Mistakes were made." The real people who made the mistakes are rarely identified or held responsible. On the other hand, we who are the victims of all of the mistakes know damned well who is paying for them.

Reading between the lines of what went wrong at CITI, it is clear that they had inadequate risk management controls. In a corporation that failure falls directly on the current and former CEOs and subordinates who let the failure develop or failed to understand or fix it. The general assumption is that the risk management wing of the financial corporation is competent and doing its job. It seems crazy that CEOs of financial institutions allowed risk management to become dysfunctional, but that is exactly what they did.

Does it make sense to blame the Katrina failure on the Secretary of Agriculture? Does it make sense to blame the investment consultant for failure of the risk management division? Is it fair to blame someone for a failure of another branch when they have no responsibility or control? Did Rubin have any authority or control over risk management at CITI.

bakho, It is all the fault of some faceless risk management team. The buck stops no where. Is that what they teach at Harvard and Yale?

I watched Pandit tap dance the other night on Cahrlie Rose. It sounds like both Pandit and Rubin are dancing to the same tune. Well, my husband saw the financial crisis coming a long time ago and predicted this mess. If my husband, with an untrained amateur's interest in the markets, could see it all coming, what's wrong with guys like Rubin and Pandit? Aren't they supposed to be highly educated, experienced business professionals?

That's our new President's top campaign economic advisor you're disparaging there, Hilz!

MMM, Smell the Change!

The fault lies with the dumb bastards you see in thr mirror every morning!

Anyone in a position of responsibility who claims they "couldn't have seen this coming" should have Paul Krugman's latest column waved in their face. It's entitled "Lest We Forget," and contains the memorable lines 'One senior policy maker asked, “Why didn’t we see this coming?” There was, of course, only one thing to say in reply, so I said it: “What do you mean ‘we,’ white man?”'
http://www.nytimes.com/2008/11/28/opinion/28krugman.html?em

Ya know, even if the generally bad economy and financial crisis did play a problem with what is going on with Citi, a better run company could have weathered it.

The fact that the company is not run well, means that what is going on does have an larger than it could have affect on the company.

And Graham called average Americans whiners.

Rick B, great comments. Implicit in the excuse that "no one could see this coming" is the notion that the financial crisis just happened, as if by an act of god, like a tornado dropping down out of the clouds. In fact, it was caused by the actions, decisions, non-decisions, delusions, etc. of people like Rubin, people who designed the system, created the "financial products", lobbied for the lack of oversight, and pocketed the money. One can see things coming if one chooses to look.

"Robot overlord" - I want one for Christmas.

Brooksley Born. That's who.

The current economic conditions could have been, and were, imaginable, and there are many other banks that are NOT in need of the US Treasury's largess.

Those are the banks which should get it.

Wasn't Rubin's pay mostly options? If so "the market" paid him although Citi was the venue. In his mind, it was market timing.

It would be interesting in a deposition of Rubin, or any other of the ilk. to ask if he thought sub-prime lending was a scam.

To be fair, Pandit has been with Citi only since 2007.