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The Untold Story of the Bailout of Citigroup

Courtesy of Pam Martens.

It’s becoming a tragic fact of life in America – the more the 99 percent sacrifice and bail out Wall Street’s misdeeds, the more the taxpayer is sucker punched.  The New York Fed and the U.S. Treasury Department’s anti-taxpayer maneuvers that benefited billionaires Sandy Weill and a Saudi Prince in the bailout of Citigroup  are prime examples. 

Weill is the man credited with the repeal of the depression-era investor protection legislation known as the Glass-Steagall Act.  He effectively put a gun to the head of legislators to repeal the law by preemptively merging Travelers Group insurance, the Salomon Brothers investment bank, Smith Barney brokerage firm, with the commercial banking operations of Citicorp. 

Under the Glass-Steagall Act and the Bank Holding Company Act of 1956, FDIC insured banks could not merge with insurance companies or securities firms, in order to prevent the type of systemic risk that created the 1929 Crash and the Great Depression. The unmanageable and too big to fail behemoth that emerged from Weill’s illegal deal making was Citigroup. 

The Citigroup merger occurred in 1998.  Glass-Steagall was repealed on November 12, 1999 with the enactment of the Gramm-Leach-Bliley Act. It was just nine years later that Citigroup was teetering on the brink of collapse after holding $1.3 trillion off its balance sheet, gorging on toxic assets, and failing to disclose an extra $39 billion in subprime mortgage exposure.  (As we discussed yesterday in Part One, we still don’t know just how bad Citigroup’s accounting was because the SEC has redacted much of that information from public records on its web site.) 

According to an SEC filing made by Weill on April 1, 2006, the month Weill stepped down as Chairman of Citigroup, he owned 16.5 million shares of Citigroup common stock directly and 41,015 in his 401(k) plan, the bulk of which came from obscene compensation schemes that rewarded executives while punishing the average worker.  (Weill could have sold some of these shares after he was no longer affiliated with the company without making an SEC filing. What we do know is that he cashed in $264 million worth of those shares in October 2003 when the company was kind enough to buy the stock.) 

Citigroup was showing serious strains in 2007 but the meltdown came the week of November 17, 2008.  On Monday, the firm called a Town Hall meeting with employees and announced the sacking of 52,000 workers.  On Tuesday, November 18, Citigroup announced it had lost 53 per cent of an internal hedge fund’s money in a month’s time and that it was bringing $17 billion of off-balance sheet assets back onto its balance sheet. The next day brought the unwelcome tidings that a law firm was alleging that Citigroup peddled the MAT Five Fund as “safe” and “secure” then watched it lose 80 per cent of its value. On Thursday, Saudi Prince Walid bin Talal, a major shareholder, stepped forward to reassure the public that Citigroup was  “undervalued” and he was buying more shares. The next day the stock dropped another 20 percent to close at $3.77.



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