CitiGroup

id heard that citigroup was a pretty nasty corporation. but none of the rumors had been substantiated. luckily, uh…there’s a lot of literature on the subject.

these first few blurbs indicate how citigroup became such a giant monstrosity of a financial organization, and how they and their lobbiests may have brought down the economy, 1929-style.

then there’s a really frightening article on phibro, this oil-trading subsidiary of citigroup, champion of deregulation, that, if not responsible for, at least has made serious bank off of the recent astronomical rise in oil prices.

the following text is also peppered with a few anecdotes about former citigroup ceos who either got the axe (the golden, jewel encrusted axe which is actually a sceptor for their new multi-million dollar principality) or ended up jumping back and forth between positions in washington (where they slashed banking regulations) and heading up the citi itself (where they made millions)**.

so i guess in conclusion, the really weird and scarry thing is that of course government cronyism is working billions of dollars into the gaping wounds of the crumbling citicorpse, as some last ditch effort to save a corporation that crashed the global economy, but also (CROSS REFERENCING a democracy now! ARTICLE)
HEY THIS IS FUCKED —
OBAMA HAS JUST APPOINTED AS HIS ECONOMIC ADVISORY STAFF
LARRY SUMMERS (close friend and coworkers of fellow deregulators of the economy alan greenspan and ROBERT RUBIN** (former citigroup ceo mentioned above)) as  Director of the National Economic Council in the White House.

so i guess apologies go along way, or at least admittances of error (greenspan), but i dont see how appointing a key architect of the global depression would really do anything to FIX the current situation. this is like saying…okay, the boats sinking. it appears to have a hole in it. lets get this guy, the drunk guy holding the power drill, lets just leave fixing the boat to him.

 

here are the juicy bits from pam martens’ articles on counterpunch.org:

http://www.counterpunch.org/martens11242008.html

Sandy Weill took Travelers Insurance, the Smith Barney brokerage firm (which had been combined with the Shearson brokerage firm), the investment bank Salomon Brothers and announced on April 6, 1998 that he would be merging all of these units with the commercial banking giant, Citicorp, owner of Citibank.  Never one to let laws get in his way, Mr. Weill announced this deal despite the fact that this combination was not allowed at the time because of the Glass-Steagall Act.
Treasury Secretary Robert Rubin who successfully lobbied for the repeal of the investor-protection law, then left his cabinet position in the Clinton administration and moved his game marker to the Board of Citigroup 17 days before the bill gutting Glass-Steagall was signed into law on November 12, 1999.   Mr. Rubin would collect over $150 million from Citigroup in the next 9 years for his Board service, without ever drawing the go-to-jail card; not even when he picked up the phone and called a Treasury official and asked the government to stop the credit rating agencies from downgrading the debt of Enron, to whom Citigroup had major exposure.  In that one instance, he was rebuffed.

hearings on June 26 over Mr. Weill’s enforcement of private justice systems for his workers.  Employees had to sign away their rights to sue the firm in court as a condition of employment and agree to secret tribunals called mandatory arbitration.
http://www.counterpunch.org/martens11272007.html
Storyline: The largest bank in the United States (by assets), Citigroup, is discovered to have stashed away over $80 Billion of Byzantine securities off its balance sheet in secretive Cayman Islands vehicles with an impenetrable curtain around them. Citigroup calls this black hole a Structured Investment Vehicle or SIV. Wall Street insiders call it a “sieve” that is linked to the breakdown in trading of debt instruments around the globe and the erosion of wealth in assets as diverse as stock prices to home values. Additionally, tens of billions of dollars in short term commercial paper backed by these and similar Alice in Wonderland assets are sitting in Mom and Pop money market funds at the largest financial institutions in America, with a AAA rating from our renown credit rating agencies.

The U.S. Mint has just released a bronze coin celebrating the newly elected (albeit reluctant) Chairman of Citigroup, Robert Rubin, for his days as U.S. Treasury Secretary.

The ousted CEO, Chuck Prince, who had to own up to approximately $17 billion in write downs and Cayman Islands’ black holes, is receiving a bon voyage package that includes a performance bonus of $12.5 million, salary and stock holdings of $68 million, a $1.7 million pension, an office, car and driver for up to five years.

SCARRIEST ARTICLE BY FAR
phibro, part of citigroup
http://www.counterpunch.org/martens06212008.html

If you want to flush out market manipulation, don’t turn to the sleuths in Congress.  They’ve been probing trading of the oil markets for two years and completely missed a company at the center of the action.  During that period, a barrel of crude oil has risen from $50 to $140, leaving a wide swatch of Americans facing a choice this coming winter of buying food or paying their heating bill.

The company that Congress overlooked should have been an easy suspect. It launched the oil trading career of the infamous fugitive, Marc Rich, pardoned by President Clinton in the final hours of his presidency.  It was at one time the largest oil and metals trader in the world. In the late 90s it bought up 129 million ounces of silver for legendary investor Warren Buffet’s company, Berkshire Hathaway, in London’s unregulated over-the-counter market.   In 1990, it was one of the first entrants into an ill-fated Russian oil venture called White Nights.  In 2005, while part of Citigroup, the largest U.S. banking conglomerate perpetually scolded for obscene executive pay, it handed its chief and top oil trader, Andrew J. Hall, $125 Million for one year’s work.  According to the Wall Street Journal, that was five times the pay package for Chuck Prince, CEO of the entire Citigroup conglomerate that year and $55 Million more than the CEO of Exxon-Mobil.

And while the Wall Street firms of Goldman Sachs and Morgan Stanley have been fingered by Congressman Bart Stupak (D-Mich) for gaming the system, Phibro has completely escaped scrutiny during a seven year period when crude oil has risen an astonishing 697%.

Phibro is the old Philipp Brothers trading firm that has resided secretly and quietly on Nyala Farms Road in Westport, Connecticut as a subsidiary of the banking/brokerage behemoth, Citigroup, since the merger of Traveler’s Group and Citicorp (parent of Citibank) in 1998.  Traveler’s Group owned Phibro at the time of the merger.  Despite the fact that Phibro has provided Citigroup with $2 billion in revenue over the past three years, the 205-page annual report for Citigroup in 2007 carries only the following one-sentence footnote on commodity income that acknowledges the existence of this company. “Primarily includes the results of Phibro Inc., which trades crude oil, refined oil products, natural gas, and other commodities.”  

Combing through government archives, the first noteworthy appearance of Phibro occurs on April 6, 2001, when the Wall Street law firm of Sullivan & Cromwell sent a letter to the Commodity Futures Trading Commission (CFTC), the Federal regulator of oil and other commodity trading, acknowledging that it was representing “the Energy Group.”  The letter was noteworthy because it delineated just who had teamed up to grease the oil rigging in Washington: namely, two investment banks (Goldman Sachs and Morgan Stanley); a house of cards that would later collapse (Enron); a proprietary trading firm inside a Frankenbank (Phibro inside Citigroup); and two real energy firms (BP Amoco and Koch Industries).

What the Energy Group had long lobbied for and finally received from its Federal regulator was the breathtaking ability to trade oil contracts and oil derivatives secretly in the over- the-counter (OTC) market, thus avoiding the scrutiny of regulated commodity exchanges, their CFTC regulator, and Congress.  The April 6, 2001 letter was essentially to say thanks and interpret the new rules as favorably as possible for the Energy Group.

The change in the law occurred via the Commodity Futures Modernization Act of 2000 (CFMA) and is called the Enron Loophole.  (Since Enron’s trading room went belly up along with the company, and Phibro is still trading oil secretly all over the world, it should perhaps now be called the Phibro Loophole.)

What the CFTC also granted the big Wall Street trading firms was a license to sneak under the radar by using computer terminals located in the U.S. while trading oil on foreign exchanges like the Intercontinental Exchange (ICE) located in London but owned by an Atlanta, Georgia outfit that was funded and launched by Wall Street firms and big oil. 

Let’s say it genuinely wanted to report back to Congress on just how big a player Citigroup is in the oil markets.  According to a February 22, 2008 filing with the Securities and Exchange Commission (SEC), Citigroup has over 2,000 principal subsidiaries (meaning it really has more but it’s not naming them).  Of these, a significant number are secret offshore entities where records are unavailable to regulators.  (For a mind boggling look at this sprawling octopus click here: http://www.sec.gov/ )
(89 of its a bajillion subsidiaries are situated in the cayman islands!)

So the CFTC can’t get its hands on all records and even in jurisdictions where it can, it first has to know under what names, out of a possible 2,000, Citigroup is trading oil and then aggregate the positions.

 the Federal Reserve decided on October 2, 2003 that Citi wasn’t scary enough.  It needed to allow this company that had already been named in hundreds of lawsuits for securities frauds and manipulations and could not remotely manage itself as a financial firm to ramp up its oil trading business by allowing it to take possession of crude oil on tankers because it would “reasonably be expected to produce benefits to the public.”  Here are excerpts from the Fed’s release suggesting the expansive plans Citi had in the oil storage and transport business:

“…Citigroup has indicated that it will adopt additional standards for Commodity Trading Activities that involve environmentally sensitive products, such as oil or natural gas. For example, Citigroup will require that the owner of every vessel that carries oil on behalf of Citigroup be a member of a protection and indemnity club and carry the maximum insurance for oil pollution available from the club. Citigroup also will require every such vessel to carry substantial amounts of additional oil pollution insurance from creditworthy insurance companies. Furthermore, Citigroup will place age limitations on vessels and will require vessels to be approved by a major international oil company and have appropriate oil spill response plans and equipment. Moreover, Citigroup will have a comprehensive backup plan in the event any vessel owner fails to respond adequately to an oil spill and will hire inspectors to monitor the loading and discharging of vessels.  Citigroup also has represented that it will have in place specific policies and procedures for the storage of oil… The Board believes that Citigroup has the managerial expertise and internal control framework to manage the risks of taking and making delivery of physical commodities… For these reasons, and based on Citigroup’s policies and procedures for monitoring and controlling the risks of Commodity Trading Activities, the Board concludes that consummation of the proposal does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally and can reasonably be expected to produce benefits to the public that outweigh any potential adverse effects.”

Voting in favor of this unprecedented action was then Federal Reserve Chairman Alan Greenspan as well as current Chairman, Ben Bernanke.

In addition to the secretive Phibro oil trading unit, Citi has formed Citigroup Energy and moved it to Houston.   In a help wanted ad placed in Canada it described itself as follows: “Citigroup Energy is a global energy trading, marketing and risk management company based in Houston with offices in Calgary, New York, London, and Singapore.  Our goal is to become the premier global energy commodities marketing and trading organization.  Currently our capabilities include trading and marketing derivatives/structured products in power, natural gas, crude and crude products.”

Enron also called itself the “premier” energy trading organization.  Apparently impressed with that model, Citigroup Energy has hired a significant number of former Enron traders.
http://www.counterpunch.org/nader1123.html
by r. nader

While Congress looks the other way, the Federal Trade Commission, at least, has weighed in on behalf of consumers. Its most noteworthy effort was a lawsuit against giant Citigroup, charging widespread abusive lending practices and violations of the Truth in Lending Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act.

Jodie Bernstein, director of FTC’s Bureau of Consumer Protection, said Citigroup’s newly acquired affiliate-Associates First Capital-engaged in a wide variety of deceptive practices.

“They hid essential information from consumers, misrepresented loan terms, flipped loans and packed in optional fees to raise the costs of the loans,” Bernstein charged.

In September, Citigroup threw in the towel and entered into a $215 million settlement with FTC. The fund will be distributed among the victims of Citigroup’s deceptive lending practices.

 

 

http://www.counterpunch.org/martens10172008.html
alan greenspan

In addition to the repeal of the depression era, investor protection legislation known as the Glass Steagall Act, the removal of credit default swaps from regulation by the Commodity Futures Modernization Act of 2000, various U.S. Supreme Court decisions upholding Wall Street’s ability to run its own private justice system shrouded in darkness, there was one more key regulatory change that greased the tracks of this train wreck. On January 22, 1992 the Federal Reserve announced that its New York region would “discontinue the ‘dealer surveillance’ now exercised over Primary Dealers through the monitoring of specific Federal Reserve standards and through regular on-site inspection visits by Federal Reserve dealer surveillance staff.”

In other words, as bank consolidation left the country with fewer and fewer Primary Dealers and more and more “too big to fail candidates,” instead of beefing up surveillance, the Federal Reserve amazingly dropped inspections. Who was at the helm of the Federal Reserve when this nutty decision was made: the same man who lobbied for the repeal of the Glass Steagall Act that ushered in the merger of depositor banks with casino investment banks and brokerages; the same man who lobbied for the passage of the Commodity Futures Modernization Act of 2000 to allow for unregulated derivatives markets. The man, of course, is Alan Greenspan who served a breathtaking 19 years as Chairman of the Federal Reserve.  That, by the way, is the approximate number I would assign to how many years it will take to repair the collapse of confidence engendered by his crony wealth transfer system created under the guise of free market capitalism.

 

 

links for future purusal:

http://www.workinglife.org/blogs/view_post.php?content_id=10573

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