Robert Rubin, the former financial superstar once lionized for his global crisis-fighting prowess, was scolded Thursday over the mortgage-securities disaster at Citigroup when he was a top executive there. His claim he didn't know of the risks piling up drew a sharp retort.
WASHINGTON — Robert Rubin, the former financial superstar once lionized for his global crisis-fighting prowess, was scolded Thursday over the mortgage-securities disaster at Citigroup when he was a top executive there. His claim he didn’t know of the risks piling up drew a sharp retort.
“You can’t have it both ways: You either were pulling the levers or asleep at the switch,” the head of the panel investigating the roots of the financial crisis told Rubin at a hearing.
Rubin expressed regret. Yet he insisted he didn’t know until late in the game, when the subprime-mortgage crisis erupted in September 2007, about the $43 billion in high-risk mortgage securities on Citigroup’s books.
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But Phil Angelides, chairman of the Financial Crisis Inquiry Commission, told Rubin that as head of the executive committee of Citigroup’s board, “You were not a garden-variety board member. … I’m not so sure apologies are as important as assessment of responsibility.”
The public scolding of Rubin marked another chapter in his fall from grace.
Until the financial crisis struck with force in 2008, he enjoyed renown as one of the most influential figures in global finance.
After leading Wall Street powerhouse Goldman Sachs, Rubin served as Treasury secretary in the Clinton administration.
Critics have said Rubin, with his vast experience, should have picked up on the warning signs of the crisis and taken a more active role in preventing Citigroup’s debacle.
“All of us in the industry failed to see the potential for this serious crisis,” he told the congressionally chartered panel Thursday. “We all bear responsibility for not recognizing this, and I deeply regret that.”
Angelides said of Rubin and former Citigroup CEO Charles Prince, who resigned at the height of the turmoil in November 2007: “The two of you in charge of this organization did not seem to have a grip on what was happening.”
After Prince resigned, Win Bischoff became acting CEO. Rubin stepped in as chairman, helping Citi raise billions in capital to shore up its sinking finances.
Citigroup was a major subprime-mortgage lender and one of the hardest-hit banks during the credit crisis and the recession. It received $45 billion in federal bailout money — one of the biggest rescues in the government’s program.
As borrowers defaulted, Citigroup’s losses reached nearly $30 billion on some portions of collateralized debt obligations, or CDOs.
CDOs are complex financial instruments that combine various slices of debt.
Prince also said he wasn’t aware until September 2007 that the bank had held onto the $43 billion in investments composed of repackaged mortgage bonds.
The next month, Citigroup publicly estimated it would lose $8 billion to $11 billion in the fourth quarter that year from those securities.
Prince said he was “deeply sorry” for the failure of the bank’s management, starting with him, to foresee the crisis that wreaked devastation on the U.S. economy and ordinary Americans.
“It is hard for me to fault the (Citigroup) traders who made the decisions,” he said.
The federal regulators, too, failed to see the signs of trouble at Citigroup, Prince and Rubin told the inquiry panel.
In later testimony, John Dugan, head of the Office of the Comptroller of the Currency, which regulates national banks, said the examiners’ impression of Citi executives was “they had a firm grasp of risk, but their appetite (for assuming risk) got bigger” and caused trouble once the risky securities infected Citi’s balance sheet.
The inquiry commission was created by Congress to delve into the causes of the financial crisis.
The three sessions this week are focused on high-risk mortgage lending and the way trillions in risky mortgage debt spread through the financial system.
The goal is to provide a firsthand accounting of decisions that inflated a mortgage bubble and triggered the financial crisis.