After a long day, I returned home to find a mound of junk mail clogging my mailbox. Of note was a letter from Citibank informing me that it was jacking up the interest charged on my credit card, adding more fees for foreign transactions and other […]

citilogoAfter a long day, I returned home to find a mound of junk mail clogging my mailbox. Of note was a letter from Citibank informing me that it was jacking up the interest charged on my credit card, adding more fees for foreign transactions and other such issues that might result from an economic meltdown. Not much of this impacted me personally, but something bothered me about this letter dubbed a “notice of change in terms and right to opt out.”At a time when its customers need most help, Citibank is leaving them jilted. Well, since the bank doesn’t really respect its customers, how can one stay loyal to their brand? So I am going to just opt out totally and take my business to a bank that’s a tad less greedy and just a tad smarter. (Suggestions, people? I know the list is very short!)

But what’s really is shocking is the billions of dollars of taxpayer money that are being spent to prop up this enterprise. Why are we trying to save a company that Cody Willard, an outstanding blogger (and a TV show host) correctly identifies as criminal?

“These guys should be in prison for criminal incompetence if not for accounting fraud and lying to investors and lenders and regulators,” he says, pointing to lies, lies and more lies from Citibank CEO Vikram Pandit and his stooges. As Michael Lewis so eloquently writes in his obituary of Wall Street, “These people, whose job it was to allocate capital, apparently didn’t even know how to manage their own.”

How can an institution, which spends tens of billions of dollars on technology infrastructure, not know that all the risk associated with toxic financial products and bad loads were like TNT sticks strapped around its thighs? Technology is supposed to help keep tabs on when risk gets totally out of hand. In this era of Google, where instant information and its analysis are becoming strategic assets, how does a company as large as Citibank fail to read the tea leaves?

There can be two explanations — they are either dumb or lying. Saul Hansell, in a brilliant piece published earlier this fall pointed out that

… most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said… The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough…. Top bankers couldn’t simply ignore the computer models, because after the last round of big financial losses, regulators now require them to monitor their risk positions. Indeed, if the models say a firm’s risk has increased, the firm must either reduce its bets or set aside more capital as a cushion in case things go wrong…. Wall Street executives had lots of incentives to make sure their risk systems didn’t see much risk.

In other words, they were straight up lying. Pandit practically admitted as much last night in an interview with Charlie Rose last night. He blamed the previous management for not knowing what they were doing and taking on too much risk. What really was shocking was that Charlie didn’t wrestle this guy — who essentially got paid $165 million to just show up at work — to the moral mat.

Citibank, at the very core, is big, fat, greedy and incompetent. When I look at this bank, which has held my money for more than 20 years, I see an obese Roman Senator at a drunken orgy, waiting for Darwin to ring his number.

P.S.: Sorry for going off topic, but I can’t help it and I am angry about incompetence being bailed out in name of looking out for the little guy. Amidst this global economic meltdown it is hard for me to get excited about a new video portal or some mythical deal.

By Om Malik

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  1. Credit Unions tend to be superior to traditional banks in every way. If you can figure out a way to be eligible for one, that may be the best way to go.

  2. I can only pray that the government charges them a service charge/ late fee and charges them 29% interest! Why di I have a feeling this won’t happen. I do feel for all the employees but something has to stop this madness…Let’em go under!

    1. my thoughts we all owe citibank somehow on credit cards repay them

  3. Om, everyone should read this so they understand the finer details of how all this went down and the sheer venality of it.


  4. Better looking link for last comment
    The End of Wall Street’s Boom

  5. No matter how much you and I wish for this, the bank couldn’t be allowed to fail since it held $37.1 trillion in derivative bets, as against Lehman Brothers $7.1 trillion. Since some of the bets of one bank are held by another one, the default of one would trigger every bank in USA to default.

    Yes there are even bigger zombies in the market Bank of America holding $39.7 trillion in derivative bets, and JP Morgan with $91.3 trillion of these Financial Weapons of Mass Destruction. So expect these two to get in news really soon.

    These banks need trillions of dollars to remain over water, and the US government is ensuring that the entire US state machinery defaults by taking their cancer into its own coffers.

  6. I’ve been pretty happy with E*Trade Bank. No ATM fees. Great interest rates on savings (well relatively speaking). No junk mail of the paper or e variety if you don’t want it and not much if you do. Tend not to incur any of those crazy other kinds of fees so can’t say I even recall if they’re competitive that way or not.

    Only downside is having to mail them deposits when you get a paper check for something.

  7. While it certainly seems true that Citibank participated in taking on large amounts of risky stuff (by multiple people’s admissions), I don’t think you can blame one institution. Everyone — Merril Lynch, Countrywide, Lehman, Bear Sterns, and on and on, was doing the same thing as far as I can see. And they kept doing it because they did not understand the financial instruments they were using. I think George Soros has the best perspective on this:

    “Financial engineering involved the creation of increasingly sophisticated instruments, or derivatives, for leveraging credit and “managing” risk in order to increase potential profit. An alphabet soup of synthetic financial instruments was concocted: CDOs, CDO squareds, CDSs, ABXs, CMBXs, etc. This engineering reached such heights of complexity that the regulators could no longer calculate the risks and came to rely on the risk management models of the financial institutions themselves. The rating companies followed a similar path in rating synthetic financial instruments, deriving considerable additional revenues from their proliferation. The esoteric financial instruments and techniques for risk management were based on the false premise that, in the behavior of the market, deviations from the mean occur in a random fashion. But the increased use of financial engineering set in motion a process of boom and bust. So eventually there was hell to pay. At first the occasional financial crises served as successful tests. But the subprime crisis came to play a different role: it served as the culmination or reversal point of the super-bubble.” from article in nyrb, http://www.nybooks.com/articles/22113

    Sounds right to me. We can’t blame any one company, we have to blame our concept of deregulated markets governing themselves. We’re paying for that belief now.

  8. First off, I have no respect for anyone that didn’t see this coming. Which is most people; about the only economist I respect is Chris Thornberg, who saw the obvious – we were in a housing bubble.

    In California, it was obvious we were in a bubble back in 2004, since housing prices were already out of whack with both income and rents. And as the percentage of IO and Option ARM loans increased (and downpayments went to 0%), it was obvious that house prices wouldn’t be rising forever – and when it stopped, there would be financial problems.

    So, no, I don’t have much sympathy for Citibank et al. But neither do I have much sympathy for real estate speculators (which means everyone who bought a house they couldn’t afford = everyone who bought a house using an IO loan or neg am loan of any type = most people who bought in CA in 2004-2007). After all, they really screwed things up for those of us who were responsible.

  9. Well put, thank you for airing the frustrations of the “main street” crowd.

    Credit Unions and local banks are the way to go, and the folks at CUs always seem happy to see you!

    Happy Thanksgiving everyone!

  10. The bailout adds the unsustainable leverage burden accumulated by banks to the unsustainable leverage burden accumulated by the US tax paying public. This may delay the inevitable, but it is hard to imagine how it fixes anything. Consolidation over the years means the mistakes of a single bank threaten the entire financial system. Reducing the threat requires unwinding the consolidation, yet further bank combinations get offered as a solution for the present crisis.


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