November 23, 2008

The Market IS Self-Correcting

Commercial banks and speculative investment banks should NOT be allowed to blend operations. The market knows this and is dealing out its punishment to those who violated this principle. One person in particular who is being punished is former Treasury Secretary Robert E. Rubin.

The following excerpt is from a New York Times article to which Paul Krugman links in his blog on Citigroup's crisis.

[Citi]bank’s downfall was years in the making and involved many in its hierarchy, particularly [CEO] Mr. Prince and Robert E. Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that Mr. [Charles O.] Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.

When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

Try to cheat the market, and the Country, and the market will punish you. And to think that Obama has been taking advice from Rubin. That might be coming to an abrupt end.

Update:

Citigroup said Friday it is splitting up into two businesses as it reported a fourth-quarter net loss of $8.29 billion — its fifth straight quarterly loss.

There has been harsh blame for Citigroup's woes directed at the board, too — and the company said Friday it plans to get rid of more board members after the recent departure of long-time director and former Treasury Secretary Robert Rubin. [2]

Sources:

New York Times, Citigroup Saw No Red Flags Even as It Made Bolder Bets, November 22, 2008.

2. Associated Press, Citigroup posts $8.29B loss, splits up the company, January 16, 2009.

Graphic Credit: Egg on Face, GDAEman.

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2 comments:

Ok said...

Egg on face?

GDAEman said...

Read the NY Times article if you haven't.