Politicians Still Dancing for Banks: Citigroup's History of Messing up and Getting Taxpayer Bailouts

by Deb Cupples | Citigroup has received at least $50 billion in taxpayer funds under the TARP (aka, the Wall Street Bailouts) -- and this is not Citi's first time being bailed out. 

Citigroup technically has existed only since 1998 -- when Citicorp merged with Travelers Group.  Long before the merger, earlier incarnations of Citicorp took heavy risks, ended up needing rescuing, and got help from U.S. taxpayers.

Back in the 1920s, when Citi was under a different name, it sold stocks to customers and operated as a bank under a then-new CEO named Charles Mitchell (aka, "Sunshine Charlie").  It was sort of one-stop shopping, but very risky in that many customers put all their eggs in one basket.   We all know what happened to the stock market (and millions of Americans' wealth) in 1929. 

Here's part of what the Washington Post describes in its concise history of Citigroup:

"The company served as a massive pipeline between Wall Street and investors, and Sunshine Charlie kept driving his sales force right up until the market collapsed.

"The company sold $156 million in shares in Anaconda, a copper company, in 1929. Those shares had lost 95 percent of their value by 1933.

"It also sold $650 million of its own shares in 1929. Those shares lost 85 percent of their value over the same period.

"After the crash, the government extended critical support to banks, including Citi, then known as National City Bank. Congress also passed a law separating retail banks from Wall Street firms. One of the authors, Sen. Carter Glass of Virginia, cited Mitchell's excesses as an inspiration.

"'Mitchell more than any 50 men is responsible for this stock crash,' Glass said."

The law that separated retail banks from Wall Street firms was the Glass-Steagall Act.

In 1999, it was Citigroup that persuaded Congress and then-President Clinton to repeal Glass Steagall.  Apparenlty, the Citicorp-Traveler's merger could not have gone through unless Glass Steagall was repealed. Here's what WaPo says about how the timing of the repeal:

"When Citicorp and Travelers Group agreed on a historic merger in 1998, the heads of the two companies placed a courtesy call to inform the Treasury Department. Then they held a news conference to suggest that Congress change the law to allow their union. Congress soon complied."

In other words, Congress and administration officials danced for Citicorp like poodles in tutus begging for bones.

The WorldCom scandal -- including massive fraud that cost ordinary investors billions and involved Citigroup -- was enabled partly by the repeal of Glass Steagall. 

Some have argued that repeal of Glass Steagall also contributed to our nation's current financial meltdown.

Another bailout of Citi occurred in the 1980s.  Citi and other banks had lent gobs of money to developing nations.  Mexico defaulted on its debts, and the U.S. taxpayers bailed out banks that had been involved -- including Citi.

WaPo's article covers other details of Citi's history, and it's well worth reading.

Other Buck Naked Politics Posts:

* Report: How Lobbyists & Politicians Caused Financial Meltdown

* Real Bonuses Based on Fake Profits

* Why are Republicans Attacking Alan Grayson?

* Taxes: Media Manipulate People To Speak Against Their Own Interests

* Republican Party: Limbaugh or Limbo

* Jon Stewart on Jim Cramer

Comments

[flowerplough]

Maxine Waters: Banking on Hypocrisy

... Blustering about underwriting fees (banks) paid themselves on government-backed bond sales, (Maxine) yelled, "You made money off the TARP money!" One of her fellow Democrats finally ended the diatribe: "I'm going to have to calm you down because when the chairman gets back he's going to have to penalize me."

Fast-forward a month later. The Wall Street Journal reported Thursday that the high-and-mighty Waters had a personal and financial stake in Boston-based OneUnited, a minority bank that received $12 million in TARP money under smelly circumstances. The banks' executives donated $12,500 to her congressional campaigns. Her husband, Sidney Williams, was an investor in one of the banks that merged into OneUnited. They've profited handsomely from their relationship with the bank:

"Congressional financial-disclosure forms show Ms. Waters acquired OneUnited stock worth between $250,000 and $500,000 in March 2004, as did Mr. Williams. Mr. Williams joined the board of OneUnited that year...

by Michelle Malkin

[Deb]

Hi Flower,

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I keep telling you: the corruption isn't about Rs v. Ds. It's rampant and not limited by party labels.

What are your thoughts on Citigroup, which is the actual topic of my post?

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I keep telling you: the corruption isn't about Rs v. Ds. It's rampant and not limited by party labels.