CITIGROUP BOMBSHELL: HELPED ENRON HIDE FINANCIAL CONDITION

Just the same old same old ... that they are "concerned"

ROBERT RUBIN AND THE ETHICAL CONFLICTS OF THE REVOLVING DOOR

By Timothy A. Canova

This past November, President Clinton signed into law the Financial Services Modernization Act, thereby repealing the 1933 Glass-Steagall Act and permitting commercial banks, securities firms and insurance companies to merge with each other on a scale not seen since the 1929 stock market crash. In reporting of this watershed moment, the mainstream press refused to offer any criticism of the substance of the legislation or the corrupt political process that brought it about.

For instance, the New York Times completely white-washed the ethical conflicts of Robert Rubin, the U.S. Treasury Secretary until this past summer, who openly boasted of lobbying his former employer to abolish the Glass-Steagall Act while also negotiating an incredibly lucrative position for himself with Citigroup, a company that stands to benefit greatly by the legislative compromise brokered by Mr. Rubin (‘Former Treasury Secretary Joins Leadership Triangle at Citigroup,' N.Y. Times, news report, Oct. 27th). In fact, repeal of Glass-Steagall was a high priority for Citigroup, which faced the possibility of having to sell off its insurance underwriting subsidiary if Glass-Steagall was not repealed.

Mr. Rubin made assurances that, in his new position as chairman of the executive committee of Citigroup's board of directors, he would take a "belt and suspenders" approach to ethics questions, and that he would be involved in business and not lobbying. But rather than adopting such ethical double-protection, Mr. Rubin let his pants fall down completely when he simultaneously engaged in lobbying and job hunting.

Instead, the Times report implied that we should actually thank Mr. Rubin for "urging Congress and the White House to preserve the Community Reinvestment Act [CRA], which requires banks to channel a portion of their lending to poor, inner city areas." In an obvious appeal to liberal sentiment, the Times further reported that Mr. Rubin had professed his great concern for the poor and his satisfaction that his lobbying for CRA was reflected in the final legislative compromise.

Behind this cynical justification of revolving-door opportunism and flagrant self-dealing lies a complete mischaracterization of the Community Reinvestment Act as an effective vehicle for allocating credit to poor neighborhoods. In fact, there is widespread evidence that CRA already falls short of its legislative mandate by permitting banks to engage in public relations, meaningless reporting requirements, and token charitable contributions in place of substantive investment in low- and moderate-income communities.

But despite such deficiencies, Mr. Rubin's-brokered compromise included significant dilution of the Community Reinvestment Act by exempting small banks from regular compliance reviews (‘Deal on Bank Bill Was Helped Along By Midnight Talks,' N.Y. Times, news report, Oct. 24th). Unfortunately, this weakening of CRA comes at a time when it should be strengthened to extend prosperity to poor neighborhoods that have not shared in our present economic expansion. Instead, Mr. Rubin peddled his influence to his own advantage by selling the Community Reinvestment Act down the river.

Several days after the Glass-Steagall repeal was signed into law, a coalition of consumer and community groups (including consumer advocate Ralph Nader) submitted a letter to the Office of Government Ethics calling for an ethics investigation into Mr. Rubin's simultaneous job hunting and lobbying activities (‘Inquiry Urged on Taking of Job By Former Treasury Secretary,' N.Y. Times, news report, Nov. 18, 1999). Federal law requires retired Government officials to refrain from lobbying their former agency on behalf of a new employer for at least one year after leaving public service. A violation of such lobbying restrictions is a federal criminal offense under the Ethics in Government Act, 18 United States Code Section 207.

In addition, the Clinton Administration has continually patted itself on the back for requiring its top officials to pledge that they will not lobby their agencies for at least five years after leaving office. In his assurances that he would take an overly-safe approach to ethics questions, Mr. Rubin also said that he would regularly consult with lawyers to make sure that his work for Citigroup did not raise questions about influence peddling or conflicts of interest. Mr. Rubin's lawyers should now be asked to justify how his simultaneous lobbying for himself and Citigroup's interest does not violate federal law.

In light of Mr. Rubin's brazen activities, one wonders just what it would take for Congress or the Clinton Administration to investigate ethical violations of former top officials. If only the stakes were confined to Mr. Rubin's new eight-digit annual salary. But with the repeal of Glass-Steagall, the weakening of the Community Reinvestment Act, and the prospect that our banks will now get caught up in today's casino stock market, Americans may eventually pay a much higher price for Mr. Rubin's ethical conflicts.

You guys have me watching this space.

Wish I had the time to do some digging myself. A lot of this information sure seems like it could go somewhere. A lot of stuff seems to be coming together too.

Good job!

Although I hope this one has huge long legs, I am so cynical about the RATS and the Clintons at this point that I tend to agree with Digger.

Hope is a wonderful and terrible emotion.

Just when you think it can't get more interesting, in comes Ron Brown...

THAT IS IT .. those are the deals I was thinking of

NYT FULL.....

Citigroup Said to Mold Deal to Help Enron Skirt Rules

By RICHARD A. OPPEL Jr. and KURT EICHENWALD

enior credit officers of Citigroup misrepresented the full nature of a 1999 transaction with Enron in the records of the deal so that Enron could ignore accounting requirements and hide its true financial condition, according to internal bank documents and government investigators.

The records and interviews with investigators demonstrate for the first time that bankers intentionally manipulated the written record of their dealings with Enron to allow the company to improperly avoid the requirements of accounting rules and the law, thus keeping $125 million in debt off its books.

In the 1999 deal, the records show, the bankers knew that a secret oral agreement they had reached with Enron required that the accounting for the transaction be changed. Instead, investigators said, Citigroup left that side deal out of the written record and allowed Enron to account for the transaction in a way that the bankers knew was improper. In other words, the full terms of the deal were left out of the paperwork, with the result being that anyone reviewing it would have no idea that the accounting treatment being used by Enron was not proper.

The relationship between Enron and its bankers has been a focus of investigative efforts since the company collapsed amid an accounting scandal last December. For months, both Citigroup and J. P. Morgan Chase have been repeatedly criticized by investigators and shareholders' lawyers for structuring billions of dollars of transactions for Enron involving entities with names like Mahonia, Yosemite, Delta and Stoneville Aegean.

The banks have responded that those transactions ? which critics say allowed Enron to disguise loans as trading liabilities ? properly followed accounting rules, and were the workaday product of a widely used business known as structured finance.

But the latest transaction ? a previously undisclosed deal called Roosevelt ? is far different. In this case, the determination of the proper way to account for the deal is not coming from outside critics but from internal Citigroup e-mail messages among bankers expressing deep concern about revealing the oral agreement with Enron in the written record of the transaction.

"The paperwork cannot reflect their agreement," according to one e-mail message written by James F. Reilly, a senior Citigroup loan executive in Houston, "as it would unfavorably alter the accounting."

A spokesman for Citigroup declined to comment, but he stressed that the bank believed that its dealings with Enron were "entirely appropriate."

A lawyer for Enron, Robert S. Bennett, said tonight that he was unfamiliar with the Roosevelt transaction, but he said that he was "unaware that those financial institutions did anything wrong."

The Roosevelt transaction and other deals between Enron and the banks are expected to be examined today at a hearing before the Senate Permanent Subcommittee on Investigations. Already, some members of the committee have concluded that the Roosevelt transaction violated accounting rules.

"Citibank was a participant in this accounting deception," said Senator Carl Levin, Democrat of Michigan and the panel's chairman.

The subcommittee's ranking Republican, Susan M. Collins of Maine, said the investigation had found that Citigroup was willing to risk its reputation "to keep Enron, an important client, happy."

Such transactions between the banks and Enron ? including Roosevelt, Mahonia and Delta ? were structured to have all the appearance of commodity trades, but ultimately served the same purpose as a loan. Money flows from the bank to the company, cash is paid back months later along with the equivalent of interest, and actual commodities rarely change hands. Technically, experts have said, such transactions ? known as prepays ? follow the requirements of the accounting rules, even if ultimately they can disguise the total debt held by a corporation.

But, for such transactions to be treated as prepays, one agreement must stay in force: the company must maintain its commitment to deliver a commodity ? like natural gas ? at some point in the future. If, instead, the company commits itself simply to return the cash, the transaction has been transformed from a prepay into a loan, pure and simple.

That is what happened in the Roosevelt transaction, documents and interviews show. In that deal, Citigroup agreed in late 1998 to transfer to Enron $500 million for six months as part of a prepay, with the company committing itself to deliver natural gas and oil at a future date. Terms of the deal called for portions of the debt to be sold off by May 1999 in chunks to other banks, to help spread Citigroup's risk ? unless the commodity was delivered or the money advanced was repaid.

As that date approached, Enron asked Citigroup to extend the time in which it was allowed to make good on its side of the transaction, according to e-mail messages between senior Citigroup loan executives. Under the company's proposal, it would repay Citigroup $310 million ? roughly the amount owed under the natural gas portion of the transaction. The remaining amount of roughly $190 million ? which corresponded with the value of the crude oil prepay ? would be paid back by Enron sometime in the fall.

"Enron characterizes this as a `favor' ? they do not wish to repay Roosevelt without full corresponding refinancing," according to an April 19, 1999, e-mail message from Mr. Reilly. In other words, Enron did not want to repay the $500 million until it could find another way to get similar financing. But, according to the e-mail message, Enron had failed to do so.

Officials in the loan department of Citigroup were "very negative" on the proposal, the internal records show. Rather than extending the time and allowing Enron to pay in the future, they suggested several alternatives under which Enron would pay the $310 million, while the rest of the debt would be sold off to other banks.

Within days, the records show, a new deal was reached, sidestepping the concerns of the loan department. Under its terms, Enron would pay $310 million in early May. At the same time, oil deliveries required to be made each month from May to September would be pushed back to begin on Oct. 1. But, under the secret oral agreement, Enron committed itself to prepay the full amount by Sept. 30 ? a commitment that bankers knew transformed the potential oil deliveries into a fiction, thus changing the deal from a structured financing into a loan.

Enron has "agreed to prepay by 9/30," Mr. Reilly, the Houston banker, wrote in an April 27 e-mail message. "The papers cannot stipulate that as it would require recategorizing the prepaid as simple debt."

Ultimately, Enron paid $375 million in May, leaving $125 million of the oil transaction still outstanding. The loan approval documents for the revisions, submitted to senior banking officials, disclosed that Enron had "verbally agreed to repay the remaining $125 million by Sept. 30, 1999." However, according to people who have reviewed the paperwork for the transaction itself, there is no mention of that oral commitment.

Mr. Bennett, the Enron lawyer, said the current criticisms by Congress were a result of political pressure to crack down on the appearance of corporate wrongdoing. "What we have here is an incredible amount of revisionist history, which is motivated by the upcoming election," he said. "Most of the problems ? not all of them ? are things that have been legal and have been acceptable."

After reading the WSJ article, I think things look quite bad for Citicorp. Being possibly exposed to the claims of Enron shareholders is close to catastrophic. Those round trip phoney commodity sales to hide debt from the balance sheet have a certain noisome quality. I think this story has legs.

October 15, 2001

Citigroup's Rubin:

Banking on Terror

Citigroup Lobbies to Weaken Anti-Terror Legislation
Anti-Terror Controls Could Clip Bank Industry's Narco-Profits

Senator: Bank Lobbyists "are being very unpatriotic"
Time To Expose the "White Collar Terrorists"

Editorial
By Al Giordano

The view is suddenly different from Citigroup headquarters in New York, and from the boardrooms of the large banks and financial institutions that compete with it, too.
We are not speaking of the empty vista of a city skyline where two towers once stood and thousands of innocent lives were lost. The sweat under the white collars of bank executives in New York is not due to fear of suicide bombers. The specter haunting Citigroup and the other large banks is that the fast march of current events could lead to a new public understanding and outrage: that terrorism and the illicit drug trade that funds it could not exist without banks to launder their funds.
The bankers and financiers knew, or should have known, all along that their money-laundering business has caused many atrocities, and would eventually lead to massacres on the scale of September 11th.

Three words must now enter the public lexicon: "White Collar Terrorists."

The kingpins of global organized crime do not wear sombreros nor turbans. They wear suits and ties. They attend political fundraisers. They hire big lobbying firms. They pressure and push lawmakers for loopholes that have, so far, allowed a system of "private banking," "correspondent banks," and "offshore shell banks" to launder the money of corrupt regimes and criminal empires across the world.

Citigroup is the largest financial institution in the world. It has been caught time and time again in narco-money laundering trails in our América and across the globe.

Citigroup, according to the Washington Post, is now lobbying to weaken anti-terrorism money-laundering legislation in Washington.

Narco News has extensively documented Citigroup's history of impunity and corruption when it comes to laundering drug money for corrupt regimes in Mexico and Peru, and Argentina, among other nations. We have also reported on the hypocrisy of Citigroup executive chairman Robert Rubin, who prosecuted Banamex in the Operation Casablanca case when he was U.S. Treasury Secretary, and then orchestrated the former National Bank of Mexico's purchase by Citigroup. Rubin, as alleged in a pending federal lawsuit by a former U.S. Customs Agent against his former department, presided over a Treasury regime that punished, harassed and silenced honest whistleblowers against corruption in his agencies.

In the aftermath of the September 11th attacks, President George W. Bush has proclaimed that Washington will now clamp down on the money laundering that funds terrorist organizations. But the White House has, so far, only frozen assets of foreign businesses, all of them from the Arab regions. The executive branch continues to allow impunity and corruption by U.S. financial powers, even as it grandstands against the terror-money trail.

Congress, however, has stood up to take on the real power-behind-the-terror-throne: United States banking and financial interests. The Washington Post reported last week that "Some of the nation's largest banks -- including Citigroup and J.P. Morgan Chase & Co. -- are lobbying to change key provisions of proposed money-laundering legislation."

The Washington Post reports:
Citigroup and other big banks want to change the wording of a provision that would require banks to actively monitor transactions they conduct for their wealthiest clients -- "private banking" customers -- and for clients of other banks -- "correspondent banking" services, sources said.

The banks want to include language that would give the secretary of the Treasury the authority to exempt U.S. banks from having to exercise enhanced oversight when doing business with banks from countries that have weak money-laundering laws, an industry lawyer familiar with the lobbying effort said.

In addition, Citigroup executive Rick Small has proposed language that would soften a provision barring U.S. banks from doing business with offshore shell banks that have no physical office and no affiliation with an established bank. Until recently, Small was one of the Federal Reserve Board's top money-laundering experts. He didn't return calls.

Each of these three areas of Citigroup's business - Private Banking, Correspondent Banking, and relations with Offshore Shell Banks - are keys to a system in which U.S. banks have been allowed to virtually monopolize the drug money trade. While U.S. authorities rail about "drug dealers," "cartels" and "narco-guerrillas," the true kingpins of the illegal drug trade are the banks and institutions that launder the drug money and hoard the profits. It is precisely for them that drug prohibition exists, and that governments protect them by prosecuting the lower levels of the illicit drug trade.

Bush's dishonest "war on terrorism" has so far followed the drug-war model of hypocrisy. He has targeted foreigners and outlaws, while leaving the powerful White Collar Terrorists within the United States to conduct business-as-usual. And thus, the institutional apparatus that funds and ensures future acts of terrorism is left in place, untouched.

Citigroup director Robert Rubin's cynical role as apologist and publicist for White Collar Terrorism did not end when he left his job as Treasury Secretary.

After the September 11th attacks, and the presidential speeches about money laundering by terrorists, Rubin penned a column for the Financial Times of London titled, with a straight face, "Getting Tough on Terror Funding."
"Fighting terrorism on a global scale must include a consistent and co-ordinated approach to stemming the flow of funds to terrorist organizations," began Rubin in his column.

Citigroup Directors Robert Rubin, Alfredo Harp, Roberto Hernández and Sandy Weill

Rubin praised the Clinton administration's actions (in effect, patting himself on the back for his own failures as Treasury Secretary) and also the Bush administration (in effect, polishing the apple for the administration whose complicity Rubin's Citigroup needs to continue business-as-usual).

According to banker Rubin, the U.S. government that regulates his and other banks has been an effective foe of illicit money laundering. In Rubin's self-interested fantasy world, one can close his eyes and almost see the twin towers of World Trade, still standing, and more than 4,000 workers assassinated there, still riding the elevator, smiling from 9 to 5 each day.

"The keys to success in this arena," writes the architect of Washington's failed policies against money-laundering, "are persistence, patience and, especially, international co-operation."

The blame, Rubin implies, lies not with the culture of impunity that allows U.S. bankers the loopholes they need to launder the drug money of despots and mafias across the world. Rubin seeks to point the finger away from his industry's responsibility and profits, toward foreign nations: "to be successful, the US must secure the full co-operation of the international community in adopting policies and procedures to identify, track and block the flow of funds related to money laundering or support for terrorism."

"Many countries," Rubin tells us, "lack the laws, enforcement mechanisms and political will to stem undesirable financial flows. Now is the time to address those weaknesses."

But what about the country where Rubin lives, and the government that regulates his bank? "The US cannot be effective in its financial assault on terrorism by going it alone," he argues.

Perhaps sensing that members of Congress are justifiably concerned that the United States has not effectively stemmed the illegal money laundering business within its borders, Rubin suggests that his fox be deputized to guard the chickens: "It is vitally important that the US government co-ordinate with the private sector throughout this process to maximise the effectiveness of this effort."
But as Rubin makes his hollow calls for "international cooperation," he and his bank are being most uncooperative with Congressional efforts to end money laundering at home, in the financial capital of the world.

Legislation sponsored by Senators Carl M. Levin (D-Michigan) and Charles E. Grassley (R-Iowa), according to the Washington Post, "is intended to make it easier for federal authorities to detect and dismantle the financial networks of global terrorists, drug dealers and other criminals."

The Senate Banking committee passed the anti-terror money laundering bill early this month. The Senators complained to the Washington Post that there are "efforts by industry to water down the bill." The Post specifically fingered Rubin's Citigroup and J.P. Morgan bank lobbyists as the perpetrators of the attempted dental surgery upon the legislation, intended, said Senator Levin, to assure that the anti-money laundering provisions would "have no teeth."
At Narco News, we will add this entire affair to our growing list of questions to be posed to Citigroup's Robert Rubin when we place him under oath and depose him in the Drug War on Trial case.

"Ron Brown's body lies a mouldering in the grave...."

More Enron Ties to Clinton, Gore, Lieberman, Rubin

Even as dismayed Democrats still fail to show any improper aid from the Bush administration to Enron Corp., evidence mounts regarding the disgraced company's ties to the Clinton administration.

Former Enron chairman and Clinton golf buddy Kenneth Lay offered a seat on the company's board in 1999 to Clinton Treasury Secretary Robert Rubin and lobbied Rubin and his successor on issues affecting Enron, documents obtained last week by the Associated Press show.

This is the same Robert Rubin being paid a whopping $40 million a year by Enron creditor Citigroup.

"The notes and letters," obtained under the Freedom of Information Act, "show that Lay pressed Enron's interests to Clinton administration officials," AP reported.

Lay wrote to Rubin on May 14, 1999, after Rubin announced he was leaving his post, "Given the way Enron has evolved, not only do we badly need a person with your experience and insights ... but also I think you would find serving on our board intellectually and otherwise interesting."

Though Rubin did not join the board, he joined Citigroup Inc., which lent hundreds of millions of dollars to Enron. He "called Treasury's undersecretary for domestic finance, Peter Fisher, last Nov. 8 to seek his intervention on Enron's behalf."

Lay also wrote a note that May 14 to Rubin's successor in the Clinton administration, Lawrence Summers, promising to be available "if there is anything at all I or Enron could do for you or the department."

Dropping Rubin's name in an Oct. 8, 1999 letter to Summers, Lay mentioned that he had spent time with him in China - that best friend of the Clinton administration - the previous week and that "he looked more relaxed than I have seen him in years." He also "indicated he was prompted to write by a speech by a treasury assistant general counsel, that federal regulators might be considering regulation of the huge global derivatives market that exists outside of commodities exchanges," AP said.

"Larry, hopefully the comments made by John Yetter were just a misunderstanding," Lay wrote. "I would very much appreciate receiving a call or note from you if in fact there is any reason that we should be concerned about this occurring."

AP reported: "Summers responded on Nov. 22, noting that Yetter and another treasury official, Assistant Secretary Lee Sachs, had met with several Enron executives to discuss the company's concerns and that Sachs spoke on the phone with Lay about the issue."

http://www.montco-pa.com/docs/news/observer/html/body_national_pg.5.html

This past November, President Clinton signed into law the Financial Services Modernization Act, thereby repealing the 1933 Glass-Steagall Act and permitting commercial banks, securities firms and insurance companies to merge with each other on a scale not seen since the 1929 stock market crash. In reporting of this watershed moment, the mainstream press refused to offer any criticism of the substance of the legislation or the corrupt political process that brought it about.

GOOD GRIEF .. I didn't know about this ...

Novemeber .. what year did this happen??

All Lieberman has been saying is that President Bush should release all the Harken documents because "it looks bad" and the "people have a right to know"...in that whiney voice of his...

Maybe I missed something in that article but did you see ONE WORD about Robert Rubin(instead Robert Bennett, attorney answered the questions)?!

I suppose Citigroup now has a voice all it's own like a real person. Not, that Robert Rubin, the Director, a Member of the Office of the Chairman of Citigroup Inc., and a member of the Citigroup Management Committee, had ANYTHING to say because MAYBE they DIDN'T bother to ask him?!

Yep letting banks into the securities business was a profoundly bad idea. It was that deregulation thing of a regulated and FDIC insured industry, an odoriforous mix and match, plus big campaign contributions that bought off congress critters of both parties, that did the trick. Where is CFR when we need it?

In the avalanche of news following the Enron collapse, the repeated calls that Enron made to the White House and Treasury Department pleading for a bailout were widely reported. Notwithstanding many Democratic insinuations that the Bush White House was a wholly owned subsidiary of "Kenny Boy" Lay's Enron, the Bush administration turned Enron down flat.

Less attention has been paid to the call that Robert Rubin made to Peter Fisher, the Treasury undersecretary who is the administration's point man on financial markets. And almost no attention has been given to the content of that call. While the call was not a crime or even a civil offense, it was in an important way the most telling event in all the recent financial fiascoes.

Rubin, secretary of the Treasury from 1995 to 1999, is no longer in government. He is a director of the Citigroup financial conglomerate. Rubin is the ne plus ultra of eminent Clintonians. Indeed, after Alan Greenspan, he is the most respected figure in international financial markets.
http://www.claremont.org/writings/020708higgins.html

Lloyd Bentsen, Gary Altman, that RTC bi_ch in Kansas City took it to Jean Lewis. Kenneth Star and Robert Ray were involved.
Spinners Gene Lyons and Joe Conason slimed everyone.

Jean Lewis, former RTC Senior Investigator, comments on the closing of Whitewater

Clinton, Republicans agree to deregulation of US financial system

By Martin McLaughlin
1 November 1999

An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22, sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.

The proposed Financial Services Modernization Act of 1999 would do away with restrictions on the integration of banking, insurance and stock trading imposed by the Glass-Steagall Act of 1933, one of the central pillars of Roosevelt's New Deal. Under the old law, banks, brokerages and insurance companies were effectively barred from entering each others' industries, and investment banking and commercial banking were separated.

The certain result of repeal of Glass-Steagall will be a wave of mergers surpassing even the colossal combinations of the past several years. The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." The financial press predicted that the most likely mergers would come from big banks acquiring insurance companies, with John Hancock, Prudential and The Hartford all expected to be targeted.

Kenneth Guenther, executive vice president of Independent Community Bankers of America, an association of small rural banks which opposed the bill, warned, "This is going to begin a wave of major mergers and acquisitions in the financial-services industry. We're moving to an oligopolistic situation."

One such merger was already carried out well before the passage of the legislation, the $72 billion deal which brought together Citibank, the biggest New York bank, and Travelers Group Inc., the huge insurance and financial services conglomerate, which owns Salomon Smith Barney, a major brokerage. That merger was negotiated despite the fact that the merged company, Citigroup, was in violation of the Glass-Steagall Act, because billionaire Travelers boss Sanford Weill and Citibank CEO John Reed were confident of bipartisan support for repeal of the 60-year-old law.

Campaign of influence-buying

They had good reason, to be sure. The banking, insurance and brokerage industry lobbyists have combined their forces over the last five years to mount the best-financed campaign of influence-buying ever seen in Washington. In 1997 and 1998 alone, the three industries spent over $300 million on the effort: $58 million in campaign contributions to Democratic and Republican candidates, $87 million in "soft money" contributions to the Democratic and Republican parties, and $163 million on lobbying of elected officials.

The chairman of the Senate Banking Committee, Texas Republican Phil Gramm, himself collected more than $1.5 million in cash from the three industries during the last five years: $496,610 from the insurance industry, $760,404 from the securities industry and $407,956 from banks.

During the final hours of negotiations between the House-Senate conference committee and White House and Treasury officials, dozens of well-heeled lobbyists crowded the corridors outside the room where the final deal-making was going on. Edward Yingling, chief lobbyist for the American Bankers Association, told the New York Times, "If I had to guess, I would say it's probably the most heavily lobbied, most expensive issue" in a generation.

While Democratic and Republican congressmen and industry lobbyists claimed that deregulation would spark competition and improve services to consumers, the same claims have proven bogus in the case of telecommunications, airlines and other industries freed from federal regulations. Consumer groups noted that since the passage of a 1994 banking deregulation bill which permitted bank holding companies to operate in more than one state, both checking fees and ATM fees have risen sharply.

Differing versions of financial services deregulation passed the House and Senate earlier this year, and the conference committee was called to work out a consensus bill and avert a White House veto. The principal bone of contention in the last few days before the agreement had nothing to do with the central thrust of the bill, on which there was near-unanimous bipartisan support.

The sticking point was the effort by Gramm to gut the Community Reinvestment Act, a 1977 anti-redlining law which requires that banks make a certain proportion of their loans in minority and poor neighborhoods. Gramm blocked passage of a similar deregulation bill last year over demands to cripple the CRA, and bank lobbyists were in a panic, during the week before the deal was made, that the dispute would once again prevent any bill from being adopted.

Gramm and other extreme-right Republicans saw the opportunity to damage their political opponents among minority businessmen and community groups, who generally support the Democratic Party. Gramm succeeded in inserting two provisions to weaken the CRA, one reducing the frequency of examinations for CRA compliance to once every five years for smaller banks, the other compelling public disclosure of loans made under the program.

The latter provision was particularly offensive to black and other minority business and community groups, who have used the CRA provisions as a lever by threatening to challenge mergers and other bank operations which require government approval. In most such cases, the banks have offered loans to businessmen or outright grants to community groups in return for dropping their legal actions. These petty-bourgeois elements have been able to posture as defenders of the black or Hispanic community, while pocketing what are essentially payoffs from finance capital and concealing from the public the details of this relationship.

The banks and other financial institutions did not themselves oppose continuation of the CRA, which they have treated as nothing more than a cost of doing a highly profitable business in minority areas. Loans tied to the CRA average a 20 percent rate of return. Financial industry lobbyists complained that they were being caught in a crossfire between the Republicans and Democrats which was unrelated to the main purpose of the bill.

The Clinton White House threatened to veto the bill if CRA provisions were substantially weakened, in response to heavy pressure from the Congressional Black Caucus and the Reverend Jesse Jackson, whose Operation PUSH has made extensive use of CRA in its campaigns to pressure corporations and banks for more opportunities for black businessmen. But eventually the White House caved in to Gramm, accepting his amendments so long as the program remained formally in place.

The White House similarly retreated on pledges that consumer privacy would be protected in the legislation. Consumer groups pointed to the potential for abuse of financial information once giant conglomerates were created which would handle loans, investments and insurance at the same time. For example: a bank could refuse to give a 30-year mortgage to a customer whose medical records, filed with the bank's insurance subsidiary, revealed a fatal disease.

The final draft of the bill contains a consumer privacy protection clause, but it is extremely weak, applying only to the transfer of information outside of a financial conglomerate, not within it. Thus Citigroup will be able to pass on financial information about its bank depositors to Travelers Insurance, but not to an outside company like Prudential. Even that limitation would be breached if there was a contractual relationship with the outside company, as in the case of a telemarketer which did work for Citigroup and was given private information about Citigroup depositors to aid in its telephone solicitations.

Threat to financial stability

The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.

The Glass-Steagall Act of 1933, which the deregulation bill would repeal, was not adopted to protect consumers, although one of its most celebrated provisions was the establishment of the Federal Deposit Insurance Corporation, which guarantees bank deposits of up to $100,000. The law was enacted during the first 100 days of the Roosevelt administration to rescue a banking system which had collapsed, wiping out the life savings of millions of working people, and threatening to bring the profit system to a complete standstill.

As a recent history of that era notes: "The more than five thousand bank failures between the Crash and the New Deal's rescue operation in March 1933 wiped out some $7 billion in depositors' money. Accelerating foreclosures on defaulted home mortgages—150,000 homeowners lost their property in 1930, 200,000 in 1931, 250,000 in 1932—stripped millions of people of both shelter and life savings at a single stroke and menaced the balance sheets of thousands of surviving banks" (David Kennedy, Freedom from Fear, Oxford University Press, 1999, pp. 162-63).

The separation of banking and the stock exchange was ordered in response to revelations of the gross corruption and manipulation of the market by giant banking houses, above all the House of Morgan, which organized huge corporate mergers for its own profit and awarded preferential access to share issues to favored politicians and businessmen. Such insider trading played a major role in the speculative boom which preceded the 1929 crash.

Over the past 20 years the restrictions imposed by Glass-Steagall have been gradually relaxed under pressure from the banks, which sought more profitable outlets for their capital, especially in the booming stock market, and which complained that foreign competitors suffered no such limitations to their financial operations. In 1990 the Federal Reserve Board first permitted a bank (J.P. Morgan) to sell stock through a subsidiary, although stock market operations were limited to 10 percent of the company's total revenue. In 1996 this ceiling was lifted to 25 percent. Now it will be abolished.

The Wall Street Journal celebrated the agreement to end such restrictions with an editorial declaring that the banks had been unfairly scapegoated for the Great Depression. The headline of one Journal article detailing the impact of the proposed law declared, "Finally, 1929 Begins to Fade."

This comment underscores the greatest irony in the banking deregulation bill. Legislation first adopted to save American capitalism from the consequences of the 1929 Wall Street Crash is being abolished just at the point where the conditions are emerging for an even greater speculative financial collapse. The enormous volatility in the stock exchange in recent months has been accompanied by repeated warnings that stocks are grossly overvalued, with some computer and Internet stocks selling at prices 100 times earnings or even greater.

And there is a much more recent experience than 1929 to serve as a cautionary tale. A financial deregulation bill was passed in the early 1980s under the Reagan administration, lifting many restrictions on the activities of savings and loan associations, which had previously been limited primarily to the home-loan market. The result was an orgy of speculation, profiteering and outright plundering of assets, culminating in collapse and the biggest financial bailout in US history, costing the federal government more than $500 billion. The repetition of such events in the much larger banking and securities markets would be beyond the scope of any federal bailout.

How the Clinton Treasury Caused the Current Stock Market Fall (Intermingling of Businesses)

In 1998, Travelers CEO Sandy Weill and Citicorp head John Reed announced plans to merge their two financial powerhouses. There was one problem: U.S. law prohibited the merger of commercial banks with insurance companies and securities firms. The two companies were not deterred. A loophole in the law barring such combinations gave the two companies a two-year window before the merger ban would kick in. That would be plenty of time, they figured, to change a centerpiece of U.S. banking laws that had stood in place for more than 50 years.
There already was momentum in Congress in support of the financial deregulation that proponents supported under the misleading banner of “financial modernization.” But there were also major legislative blocks and hurdles, and no assurance of passage.

Enter Citigroup. Though Citicorp has opposed the deregulation bill, the merged Citigroup became its most important advocate, with Sandy Weill pitching a tent in the halls of Congress to lobby legislators.

Still, the bill remained mired in Congress, thanks to jurisdictional disputes among federal agencies, intra-industry conflicts and consumer group opposition.

Former Clinton Treasury Secretary Robert Rubin sealed the deal. After having left his Treasury Department post, but amidst negotiating his new terms of employment as chair of the management committee at Citicorp, Rubin brokered the final compromise to ensure passage of the financial deregulation bill.

While Citi’s top priority was an after-the-fact legalization of the tainted Citicorp-Travelers merger, much more was at stake — for both the financial industry and consumers. The bill has enabled not just this particular corporate combination, but the intermingling of businesses that were formerly, properly and prudentially, kept apart.

http://multinationalmonitor.org/mm2002/02april/april02editorial.html

full story here

The Private Government of Citigroup It is now commonplace to speak of the power of “the markets” relative to the prerogatives both of individual firms providing goods and services and of governments themselves. The markets are said to exert authority, and at least veto power, over company decisions about how much they pay workers, what technologies they invest in, whether they take measures to protect the environment and much more. Conventional wisdom holds that the markets block governments from imposing limitations on corporate activity — ranging from protections for workers against sudden firings to limits on air pollution emissions to caps on corporate size.

There is no small amount of truth to these observations. But they may obscure as much as enlighten, especially to the extent that they depersonalize responsibility and convey a common circumstance of passivity on the part of the world’s largest institutions.

Focusing attention on Citigroup, the world’s largest private financial institution, illustrates the flaw in ascribing too much power to the undifferentiated markets. On the one hand, the power of markets is dependent on the rules of the national and global economy — rules which Citigroup and other large corporations help write. On the other hand, even the financial markets are made up of institutional players like Citi that, depending on the issue, exert enormous influence over the markets’ effective collective decisions.

The story of Citigroup’s formation illustrates how this financial goliath maneuvers to escape the tethers of government regulation.

In 1998, Travelers CEO Sandy Weill and Citicorp head John Reed announced plans to merge their two financial powerhouses. There was one problem: U.S. law prohibited the merger of commercial banks with insurance companies and securities firms. The two companies were not deterred. A loophole in the law barring such combinations gave the two companies a two-year window before the merger ban would kick in. That would be plenty of time, they figured, to change a centerpiece of U.S. banking laws that had stood in place for more than 50 years.

There already was momentum in Congress in support of the financial deregulation that proponents supported under the misleading banner of “financial modernization.” But there were also major legislative blocks and hurdles, and no assurance of passage.

Enter Citigroup. Though Citicorp has opposed the deregulation bill, the merged Citigroup became its most important advocate, with Sandy Weill pitching a tent in the halls of Congress to lobby legislators.

Still, the bill remained mired in Congress, thanks to jurisdictional disputes among federal agencies, intra-industry conflicts and consumer group opposition.

Former Clinton Treasury Secretary Robert Rubin sealed the deal. After having left his Treasury Department post, but amidst negotiating his new terms of employment as chair of the management committee at Citicorp, Rubin brokered the final compromise to ensure passage of the financial deregulation bill.

While Citi’s top priority was an after-the-fact legalization of the tainted Citicorp-Travelers merger, much more was at stake — for both the financial industry and consumers. The bill has enabled not just this particular corporate combination, but the intermingling of businesses that were formerly, properly and prudentially, kept apart.

Now affiliates of holding companies are free to share information related to finance, health and other personal consumer matters. (As a sop to consumer groups, the law permits consumers to opt-out of these information sharing arrangements, but most consumers do not read or understand the notices they receive informing them of these rights.) The information sharing facilitates marketing efforts by the growing financial giants, at the expense of consumer privacy.

The financial deregulation law purports to prohibit cross-subsidization of imperiled insurance or other subsidiaries by the financial services companies’ banking affiliates. But the structure of the newly formed companies makes such internal asset sharing almost unavoidable. Since the banks’ money is backed up by federal insurance, the problem becomes one not just of financial stability, but of the involuntary expansion of the federal guarantee to other financial service company operations.

The mega-companies enabled by the deregulation law call for a more robust-than-ever regulatory authorities — to monitor that no Enron-style cooking of the books is occurring. But Citi along with the rest of the finance industry made sure that provisions to strengthen and coordinate decentralized and disjointed U.S. financial regulators were not included in the final bill.

A similar leveraging of Citi’s power on Capitol Hill is unfolding yet again, as Congress makes way to achieve final passage of a bankruptcy “reform” bill. Simply a dream in the mind’s eye of industry lobbyists just a half decade ago, the bill in 2000 passed both houses but was vetoed by then-President Bill Clinton. It passed again last year, but did not emerge from conference committee. Now the Congress appears set to get a bill to the president’s desk. President Bush has indicated he will sign it.

The bill is designed to alleviate a manufactured bankruptcy crisis. It is manufactured in two senses. First, in that there is no evidence of a surge in individuals gaming the system and illegitimately declaring bankruptcy, notwithstanding the industry’s claims to the contrary. Second, in that the problem of excessive consumer debt — a real problem — is due in significant part to abuses of Citigroup and the financial services industry itself. Their extremely aggressive pushing of credit cards, and the usuriously high interest rates they attach to credit card debt, have left millions of consumers deep in hock.

Rather than curtailing the abuses of Citigroup and the rest of the credit card industry, of course, the Orwellian Bankruptcy Abuse Prevention and Consumer Protection Act would penalize those in tough financial times. It gives high priority to repayment of credit card debt — even as opposed to payments for housing, child support and other more important obligations — and attaches other onerous conditions to personal bankruptcy. It locks many out of bankruptcy courts altogether. The National Consumer Law Center says, “in virtually every respect, the bills [both Senate and House versions] would make it harder for debtors to file and would undermine the relief available in the bankruptcy system. ... [They] would drastically shift the balance of power in bankruptcy cases in favor of creditors.”

Citi gets its way in Congress through the normal payoff system of campaign contributions (company donations totaled more than $2.5 million in the 2000 election cycle, and the company is the top political donor among commercial banks in the current cycle, according to the Center for Responsive Politics), and an elaborate lobbying operation (in 1999, the most recent year for which data is available, the company spent more than $5 million on 63 lobbyists at firms ranging from Akin, Gump to Wilmer, Cutler and Pickering, according to the Center for Responsive Politics). But Citi gains influence as well simply by virtue of its size, its heavy advertising and its 50-state presence — which make politicians aware of its reach and deferential to its demands. The company is also able to deploy Rubin as a lobbyist, spokesperson, well-connected insider and arm-twister without peer.

The company functions equally effectively in the international arena, where its interconnections with the U.S. government serve it well.

It played a vital role in lining up the political forces to back the launch of the World Trade Organization, as Antonia Juhasz notes [see “Servicing Citi’s Interests”]. Citi was among the leading corporate ideologues pressing for negotiation and adoption of the WTO agreements; and continues now to back expansion of the WTO’s General Agreement on Trade in Services (GATS), which will remove barriers to Citi’s global ambitions.

The company is among the leading recipients of backing from the U.S. Overseas Private Investment Corporation, relying on OPIC support in Argentina, Brazil and Jamaica, among other locales.

And Citi’s influence has been decisive in arranging U.S.- and International Monetary Fund-led bailouts during the Mexican financial crisis of 1994 and the Asian financial crisis of 1997-1998. Those bailouts helped not the people in Mexico, South Korea, Thailand and Indonesia who found their economies suddenly decimated, but the foreign lenders who had actually helped created the crises. The infusion of bailout money went largely to pay off foreign creditors, of which Citi was among the most prominent in both instances.

Citi helped create those financial crises through excessive lending; Citi arranged publicly financed bailouts that relieved the company of the costs of its errors; and then the company took advantage of the crisis countries’ vulnerability to force them to open their markets to foreign firms. Post-crisis, Citi has acquired Mexico’s Banamex, and is now contemplating bidding on the credit card business of South Korea’s Chohung Bank.

Indeed, Citi worked with Rubin, then in his Treasury Department role, to use the crises to force open the countries’ financial sectors. “Lobbying by American financial services firms, which wanted to crack the Korean market, was the driving force behind the Treasury’s pressure on Seoul,” reports Paul Blustein in his book, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF.

But more is going on here than just the leveraging of private power to influence public decisions. Even more than most companies, Citigroup functions as a private government. Its decisions have enormous influence over the allocation and terms of credit in the United States and around the world. These are decisions that fundamentally shape the way the world works and looks.

Citigroup has recently acquired The Associates First Capital, the largest U.S. predatory lender, which has specialized in ripping off poor people [see “Predatory Associates”]. It claims to be cleaning up Associates’ act, and is unlikely to continue the low-grade, shady operations that prevailed under the company’s former ownership. But community groups around the United States insist that Citi has failed to provide adequate credit in low- and middle-income communities. They are demanding that the nation’s largest bank begin providing those neighborhoods with the capital they need to prosper.

And now the environmental movement is increasingly focusing on Citi and other private lenders’ loan practices in the developing world, calling attention to the lenders’ responsibility for bankrolling environmentally destructive projects which could not proceed in the absence of private finance [see “The Cost of Living Richly”].

These campaigns — longstanding in the case of the community groups, much newer in the case of the environmentalists — recognize the imperative of bringing Citi under public control. The U.S. Community Reinvestment Act, obligating banks to make loans in low- and middle-income communities, is an imperfect but vital example of how the public can begin to place affirmative obligations on Citigroup and others in the finance industry.

Imposing such obligations, as well as strengthening regulation of the industry, establishing new mechanisms of accountability and aggressively applying antitrust and pro-competition rules, are all made much more difficult by Citi’s grip on political power.

But it is vital that citizen movements galvanize around such demands quickly. The Citi-led trend to rapid consolidation in the financial services industry is altering the balance of political power ever more in favor of the finance industry and against democracy.

One thing about all of this... and not just Citi...

Corporations are cut throat liars. They step on whoever they want. They have no loyalty to anyone or anything.

They cheat.

All of these scandals hopefully "roll" the leadership of corporate America into changing its tune.

Being honest gets you no where but canned. Its the corporate way.

Just back from vacaction and thought that you might want to add this juicy one to your Enron bump. When I walked into my house last night at the end of my vacation I found a leaking hot water tank. So I worked on that last night till midnight an tonight. I also found a crisis with a client at work. So I can't really do much on commenting on thing right now. Lots of interesting stuff though.