The New York Times chronicles a now-familiar tale of incompetence and greed that led to the (all but) destruction of a legendary global financial services firm:
- Oblivious CEO (Chuck Prince)
- Idiot risk manager who assured oblivious CEO that everything was great until the day it wasn’t (David Bushnell)
- Inadequate risk controls, wet-noodle risk managers pushed around by big swinging dicks who made 100X as much money
- Trading boss incented to bet the farm every day and make tens of millions doing it with no downside if wrong: (OK, minor inconvenience if wrong: lose job, go get another). Not hard to figure out how to play that one. (Thomas Maheras).
The difference in Citigroup’s case is that the decision-making included Bob Rubin, the former Treasury Secretary, who is a Citi director and a key senior adviser.
Rubin was not intimately involved in the firm’s trading decisions, and, given the pathetic state of the firm’s risk controls, it’s possible he did not appreciate how much risk the firm was taking. That said, given Rubin’s experience, the revelations that he was very much in the loop are startling.
In April, Rubin told the NYT that he did not believe he had made any mistakes in his tenure at Citi:
“I’ve thought a lot about that,” he said. “I honestly don’t know. In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.”
We are big believers in Rubin’s astute observation that you have to judge the quality of decisions by what you knew at the time you made them, not by their outcome.
That said, Citigroup’s demise is not an act of God, and we think it’s fair to say that major global banks shouldn’t go from $245 billion to toast in a year in the normal course of business. So we think it’s fair to say that someone at Citi screwed up. Big time.
And we would be surprised if, over the next few years, someone of Bob Rubin’s talent and intelligence didn’t come to believe that he and Citi made some mistakes even based on what they knew at the time. (And they certainly have plenty of company.)
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