By Simon Johnson
Today, perhaps following our earlier recommendation, Mr. Vikram Pandit – CEO of Citigroup – will appear before the congressional oversight panel for TARP. (Official website, with streamed hearing from 10am).
This is an important opportunity because, if you want to expose the hubris, mismanagement, and executive incompetence – let’s face it – Citi is the low hanging fruit.
Citibank (and its successors) has been at the center of every major episode of irresponsible exuberance since the 1970s and essentially failed – i.e., became insolvent by any reasonable definition and had to be saved – at least four times in the past 30 years (1982, 1989-91, 1998, and 2008-09).
In the last iteration, Citi was guided by Robert Rubin – self-styled guru of the markets and sage of Washington, a man who likes to exude “expect the unexpected” mystique – directly onto the iceberg at full speed.
Mr. Pandit was brought in by Mr. Rubin to refloat the wreckage, despite the fact that he had no prior experience managing a major global bank. Mr. Pandit’s hedge fund was acquired by Citi and then promptly shut. And Mr. Pandit’s big plan for restructuring the most consistently unsuccessful bank – from society’s point of view – in the history of global finance: Reduce the headcount from around 375,000 to 300,000.
Here are five questions the FCIC should ask. This line of enquiry may seem a bit personal, but it is time to talk directly about the people, procedures, and philosophy behind such awful enterprises.
- As far as anyone can judge, Mr. Pandit, you are completely unqualified to restructure and run a disaster prone global bank. Can you please explain in detail how you got the job?
- Your hedge fund. Old Lane Partners, was closed by Citi in June 2008. Please elaborate on why it was closed, including how much money you lost on what kinds of securities. (Hint: follow the NYT through the sad story.)
- Please review for us the details of your promised compensation package and how much you have actually received – including cash, deferred compensation, stocks, and perks (including executive jet travel, valued at market rates); do not forget your chunk of the Old Lane deal. How much taxpayer money has been injected into Citi and on what basis?
- Of course, as you understand full well, the true cost to society of Citi’s misdeeds is vastly more than the direct taxpayer injections of capital. Please tell us – as specifically as you can – what other burdens Citi has generated for the rest of us. (Hint: there is a right answer here, which includes more than 8 million jobs lost since December 2007, a 30-40 percent increase in net government debt held by the private sector, and much higher taxes for everyone in the future.)
- Mr. Pandit, your proposed restructuring plans simply make no sense; there is nothing you have put on the table that would reduce the risks posed by Citi to the national interests of the United States. Even John Reed, the man who built Citi as a global brand, now says that it should be disbanded. There is no evidence – and I mean absolutely none – for economies of scale in banks over $100bn in total assets. Richard Fisher, head of the Dallas Fed, calls for immediate action in terms of breaking up large dysfunctional banks such as yours; please explain to us why the Fed should not move immediately to apply his recommendations to Citi – surely, the safety and soundness of our financial system is on the line.
And if Mr. Pandit replies, in response to point 5, “you need Citi because other countries have large banks,” he should be laughed out of court. Just because other countries do things badly and refuse to address their underlying issues has never stopped the United States from fixing its problems. The basis of this republic is our ability and our right to govern ourselves.
We should thank Mr. Pandit and his colleagues at Citi for their service and move immediately to break up their bank – just as our predecessors thanked Mr. Rockefeller and broke up Standard Oil in 1911.
The Baseline Scenario 
It is refreshing to read sensible, thoughtful, articulation of specific contributions such as Citi’s. to the economic recession. It would be refreshing to see a sensible, thoughtful, congressionl embrace of such thinking that actually honors our inherited right, delegated to our public servants as their duty, to govern ourselves.
Thank you, Mr. Simon, for making it more obvious what needs to be done, by whom, when, why, and how.
I nominate you for Treasury Secretary to replace the man from Wall Street.
Just playing devil’s advocate, because I agree completely with this post.
What if the (spoken or unspoken) response to point five is that doing so will cause the loss of tens of thousands of jobs in the financial sector, and we can’t afford to lose more jobs.
Wait, we “can afford to lose more jobs” that are unproductive??? What are we, French??
Simon Tarbell.
“despite the fact that he had no prior experience managing a major global bank…”
May be the author needs to do more research before he writes . Pandit was the President, and COO of Institutional Securities at Morgan Stanley before he started his hedge fund. Much of ISG’s success could be attributed to him.
He’s the only wall street CEO who has a PhD.
Much of Citi’s plight should be attributed to his predecessors.
At MS he was responsible for building one of the best operations on the street.
Come back 5 years later, and let’s see how things turn out!
“Come back 5 years later, and let’s see how things turn out!”
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You should have prefaced that statement with; “Assuming Citi still exists,”.
And are you implying that he deserved the huge bonus because he has a PHD?
If they buy this: “you need Citi because other countries have large banks,” then the US govt should move forward right away to create quality, affordable healthcare for all because other countries also have universal healthcare. :-)
The problem with the author’s note is that he claims someone is not qualified to run Citi because he only has experience running a hedge fund and does not have experience running a real business, contrary to the facts. Pandit started at MS in 1983, and rose through the ranks. Just to make your point you cannot belittle other’s experience.
Btw his bonus was negotiated before the collapse of the system, and as far as I know he’s not taken a salary after he made the pledge of $1. It’s very easy to get carried away by reading headline news. Also note most banks pay this year’s bonus next year, which means even if Pandit didn’t take a bonus in 2009, his 2008 bonus shows up as salary for 2009.
And I do believ MS does count as a major global bank contarry to Simon’s comments.
Citi wasn’t even close to being insolvent in ’98. They were the least exposed to LTCM of all the major banks. If you knew anything about the LTCM episode, you’d know that Citi shuttered its famous fixed-income arb desk in June 1998. That was the beginning of the end for LTCM, but also meant that when LTCM eventually did implode in October, Citi wasn’t on the same side of all LTCM’s trades. To say that Citi was “insolvent by any reasonable definition” in 1998 is basically to admit that you have no idea what actually happened with LTCM in ’98. Oh yeah, and it’s also a bald-faced lie.
This whole shtick — where you make things up and blatantly misrepresent the facts in order to
lie to your readerstell a good story — is getting really, really old.Spot on comment. This was extremely sloppy writing and I am hopeful that this site doesn’t degenerate into this kind of populist pandering.
Amen, and ditto for all of the other members of the oligarchy who need to answer the same questions, and, in many cases, many, many more questions. It is so sad to see some incredibly greedy folks destroy the lives, families and careers of so many to pay for whatever ridiculous things they can buy with their billions. It’s kind of like having a close encounter with a skunk: you can wash those clothes a hundred times, but the skunk’s still in them, the only cure is to burn them. To say I hate what they have done is to put a smile on things.