Imagine if you could take out a loan, buy stocks or other on-paper investments with the loan, later sell the stocks, pay off the loan and keep the profit. Better yet, imagine if you had a bank, could give yourself a loan, and do the same thing for yourself and "clients," for a fee in addition to the interest on the loan. What a way to game the system. Can't be legal, can it? Actually, this is what Citibank and Citigroup have been doing.
The Glass-Steagall Act, following the 1929 stock market crash, separated investment banks (Citigroup) and commercial banks (Citibank) making this type of thing illegal. In 1987, banking laws (Section 20) were changed to allow commercial banks to have subsidiaries that could offer investment services. This, in part, precipitated a massive consolidation of banks in the late 1990s, though the mergers were world wide.
Between 1990 and 1998, the number [of bank mergers] averaged about 510 per year compared with 345 per year over the 1980--89 period. As a result of this activity, the number of banks operating in the U.S. has declined about 30 percent since 1990. [LINK]
An indication of the severity of the home mortgage liquidity crisis we're in was a further bending of the rules for Citibank/group by federal regulators in August 2007. At the time, one had to wonder if that would be enough to bail out this scheme. Apparently it wasn't.
As an indication of the inside-crowd capitalism, we're reminded that Clinton-era Treasury Secretary Robert Rubin is the Citigroup executive committee chairman. Saudi Arabian Prince Alwaleed bin Talal is on the Citigroup executive committee as Citigroup's biggest individual shareholder. Where do people get off bashing Michael Moore for exposing Saudi influence over US policy? True conservatives know that Moore is speaking truth to power.
I'm reminded of the quote by Italian dictator Benito Mussolini:
Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.
Update:
From our libertarian friends, Gary North in particular, we hear the following:
The new CEO of Citigroup, America's largest bank, is a former Goldman Sachs co-chairman and a former Secretary of the Treasury, Robert Rubin. Goldman Sachs has made record profits in recent months. How? By selling short the subprime mortgage bond market.
Sources:
Associated Press, Report: Citigroup CEO Will Offer to Resign Sunday; Board Expected to Hold Emergency Meeting, November 2, 2007.
Two Kinds of Experts, or "The CEO Formerly Known as Prince," Gary North, November 8, 2007, LewRockwell.com.
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