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Former Citibank heads testify on crisis

Steve Chiotakis Apr 8, 2010

Former Citibank heads testify on crisis

Steve Chiotakis Apr 8, 2010


Steve Chiotakis: A couple of former high-profile bankers are testifying on Capitol Hill right now before the Financial Crisis Inquiry Commission, talking about the role Citigroup played in the financial meltdown. Now the panel is looking at how the crisis happened and what to do to avoid another one. Citi’s been criticized for spreading subprime mortgage risk across Wall Street. And its former CEO, Charles Prince,
was contrite going in:

Charles Prince: Let me start by saying I’m sorry. I’m sorry that the financial crisis has had such a devastating impact on our country, I’m sorry for the millions of people, average Americans who have lost their homes, and I’m sorry that our management team — starting with me — like so many others could not see the unprecedented market collapse that lay before us.

Former Treasury Secretary Robert Rubin, who chaired the bank’s board, is also testifying. And former Republican Congressman Bill Thomas is vice-chairman of that commission, the inquiry commission, and he joins us right now. Congressman, thanks for being with us.

Bill Thomas: Yeah, my pleasure, how are you.

Chiotakis: Yeah, I’m doing well. I want to start about, talking about the subprime mortgage risk becoming this systemic problem, I mean one that spread from bank to bank and infecting nearly the entire industry. Why is that so important to rehash?

Thomas: Well first of all, I want to make sure that your listeners understand that it wasn’t just former Fed Chairman Greenspan who said he didn’t have anything to do with it, it was the entire panel from Citibank who also said they didn’t have anything to do with it. It was a very complicated but important discussion yesterday with some of the people who structured these products having to do with offering high interest rate at what was supposed to be low risk. They were very popular, they rapidly permeated investment portfolios both here and abroad, and of course when the housing markets collapsed, that portfolio many people thinking they were sitting on, triple-A, the best and the highest rated, virtually no risk investment instruments, found that they were basically worthless.

Chiotakis: I want to go back to what you were talking about, Alan Greenspan saying that he did not have anything to do with the meltdown. Do you believe him? What do you think?

Thomas: He was chairman of the Federal Reserve. We have a number of regulatory agencies here — the Securities and Exchange Commission, the Federal Deposit Insurance Corporation — and that’s one of our concerns. Sometimes, you realize that you have too many regulators, therefore people operate between the regulation fences. Regulations are always put in after the fact. Former Chairman Greenspan I think did contribute a significant point, and that is if you had adequate capital, then you would have had these problems. People were offering these with no capital on their books and never thought they would really go down to the level they went down. And so when they went down, they didn’t have the ability to cover them. You have to understand, they were adequately capitalized according to the regulation structures at the time. That’s their quote-unquote “defense.”

Chiotakis: We’re going to have to wrap it up there, but I do thank you for your time, sir, thank you for being with us.

Thomas: It’s important and I wish people would listen, thank you.

Chiotakis: I’m sure many people are, as a matter of fact. Thank you again.

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