Forbes has an interesting interview with the former top boss at Citigroup. You can read through the interview yourself and make up your own mind. There are a few quotes I would like to respond to directly to give you my opinion on the matter. Frankly, I thank Mr. Weill for not softening the corners and giving it to us straight as to his opinion on of global financial crisis
Quote #1 (with question)
How do you think America’s biggest banks have recovered from the financial crisis?
I think the banks are in very good shape right now. I don’t like the new financial regulations. What bothers me the most is I think that banks could be controlled or managed by having good regulations and by having more transparency. I think this whole concept of fixing ‘too big to fail’ is a problem because when you create an environment where you can’t make a mistake then you’re also creating an environment where nothing good is going to happen.
A mistake is different then taking obviously junk residential real estate loans (sub-prime), getting insurance (CDS) from companies without the capital to back up losses, calling it AAA, selling it to anyone who would buy it. Yes there were major mistakes made in this process but even in the policy makers put the perverse incentives in place, the banks had a responsibility as the guardian of capital to not be reckless and to use the old adage, “when the music plays, dance.”
Quote #2 (with question)
But a lot of Americans blame lax regulations and the big banks for the financial crisis. What would you say to them?
I would say there is enough blame to go around. I think that the financial industry made some mistakes that created issues, our government made mistakes that created issues, the regulators made mistakes that created issues. People made mistakes that created issues.
Lots of people were at fault. I think we want to move on. There comes a time when you stop punishing people and ask how do we build this back in a way that’s going to be safer for the future? We should concentrate on the future and positive thinking.
I agree with the last part on having a future bias and positive thinking. BUT To say we need to “stop punishing people” would only make sense if we were actually punishing people. Think to yourself after the largest financial crisis in the history of the planet, who has been punished that had a major influence on the crisis while it was building up??? Not only have we not punished much of anyone, all the major banks have settle out of courts without guilt on pretty much textbook fraud and or misrepresentations. We also have drug our feet so long that the statue of limitations have run out on many of these potential cases. Mr. Weill, don’t worry, we have moved on technically. After the S&L crisis have read about of at least 700 people (conservative estimate) that went to jail because of that fraud.
Here it the full interview, post comments to weigh in to agree or not and I will approve them so we can see where people stand on these opinions.
Good to see the government unload their shares back to the private sector. They did not really involve themselves much in management or compensation issues other than the general TARP mandate so this will take the overhang off the stock. Citigroup is the posterboy for the “Too Big to Fail” Koolaid that everyone was drinking for the last 24 months.
This has got to stop and if any large bank commits such bad mistakes then they need to pay the ultimate price like any other company. Until we understand that no matter what the cost, the long term cost will always be greater if we let bad companies stay in business and keep good companies prosper the lessening of competition as well as preventing new entrants from entering the field because of the embedded players.
This is at the very core of our problems in this country, we shun the dynamism that failure brings to our economy. We want to support existing companies even when it does not make a business case for having them around. This only helps our foreign competitors. If we are using our resources to support failing companies then we are not letting those resources go to where the future jobs will be generate along with natural growth.
USA Today – The Treasury Department said Monday that its first sales of Citigroup stock (C) will cover up to 1.5 billion shares.
That would amount to about 20% of the 7.7 billion shares of Citigroup common stock the government owns.
It received the shares as compensation for the financial support it extended to the bank during the height of the financial crisis.
In a statement Monday, Treasury said it plans to proceed with the sales of the Citigroup common stock “in an orderly fashion under a pre-arranged trading plan with Morgan Stanley, Treasury’s sales agent.” Treasury did not disclose in its brief announcement exactly when the stock sales would begin or how long the sales would last.
I think many were wondering when this was going to be addressed. If you remembered back when this deal was made was when we still had investment banks and people thought this crisis was just a mild recession and all these banks were buys and were temporarily impaired because of these pesky real estate decline. Abu Dhabi paid a handsome sum at the time to come help Citigroup out when they were in a pinch and since that investment or speculation depending on how you look at this, were burned pretty bad with Citi’s shares trading at $3.78 per share.
My thinking is that Citi will rework the terms of the deal to make sure that credit-line is their for them in the future if they need it in the future. It will be interesting to see how this turns out and I have been thinking about this for over a year now, glad to see its in the media and getting some traction.
Citigroup Inc said on Tuesday the Abu Dhabi Investment Authority filed an arbitration claim against it, accusing the U.S. lender of misrepresentation over a $7.5 billion investment by the sovereign wealth fund. The sovereign wealth fund, considered by some the largest in the world, bought securities from the U.S. bank in 2007. In the original deal, the Citigroup bonds must be converted into common stock at a price between $31.83 and $37.24 a share between March 2010 and September 2011.
Well its a race to from under the “Pay Czar” and now Citibank is running as well so they can pay bonuses as well. I guess the bonus race is on these days. My question is if the government will be removing its $300 billion in guarantees for Citigroup loans and securities? If that is not withdrawn then is it clear that they are not from under the TARP program and they should still be under those pay constraints.
It is already bad enough that the U.S. taxpayers has bailed out and provided a backstop for our banking institution but now we are not seeing any real “thanks” for that gesture and more focus on getting clear of the rules that were setup so they can get paid before Christmas. Don’t be too dis-trot, this is greed working its magic, we setup the rules and they are following them so next time if we are satisfied with them, then we need to write better rules and that starts with people intelligently engaging their representatives so your voice and opinion is heard and taken seriously.
Education is the key in complex matters like finance and economics and that means you need to take some of your leisure time and dedicate it to learning about these matters if you want a different outcome than what we have gotten this far. That is a main reason I write this blog is to educate and force myself to be current by reading news on these subjects everyday.
Wall Street Journal, New York - Monday took a step toward defining how it wants to serve Main Street. The bank announced it is changing the way its financial advisers operate; those 600 advisers who work within Citibank branches, and who remained when the bank combined its Smith Barney brokerage with Morgan Stanley’s brokerage in a joint venture.
Citi decided to rid itself of commission-based advice and will charge clients a fee of about 1% of invested assets. It will give clients who want wealth management services through Citibank branches the option of working with Citi’s own financial advisers, or of choosing independent advisers with whom Citi will begin to form relationships, and who will pay Citi a fee for the referral.