February 27, 2009

AP Report on Uncle Sam’s Citi Deal Avoids ‘Nationalization,’ Plays ‘Name That Party’ with Fat Cat Former Obama Adviser Bob Rubin (Recalling Rubin and Enron)


  • An 800-word AP article on the quasi-nationalization of Citigroup doesn’t mention any variation on the word “nationalization.”
  • Clinton Admin Treasury Secretary Bob Rubin is not described in the article as a Democrat. He was once (quite erroneously) considered one of the architects behind the economy’s mid- to late-1990s growth. Now he’s just “a former Treasury Secretary.”
  • Rubin “earned” $115 million while he was at Citi and significantly influenced its failure.
  • Update 2 below recalls that Rubin tried to get the Bush administration to bite on influencing a delay in a ratings downgrade of Enron debt in 2001. While not technically illegal, that attempt was certainly unethical and corrupt.


There’s an N-Word you apparently write at your own risk if you’re in the establishment media. It’s “nationalization.”

The Associated Press’s Stephen Bernard, with the help of old reliables Jeannine Aversa and Martin Crutsinger, blew through almost 800 words (link is dynamic; 12:49 p.m. version is saved here for future reference, is now authored by Crutsinger, and is longer than what I originally read) about the deal between Uncle Sam and Citigroup, under which the government could end up with a 36% ownership stake — almost certainly enough, as Citi’s largest shareholder, to impose its will — without mentioning the term.

Another precious tidbit is in the story’s second-last paragraph (bold is mine):

Last month, Robert Rubin, a former Treasury Secretary who was a longtime Citigroup board member, and Win Bischoff, most recently chairman at Citigroup, both announced their retirement from the company.

“A” former Treasury Secretary?

Gee, until recently he was known as Democratic Treasury Secretary under Democrat Bill Clinton.

According to the press until relatively recently, Rubin was the one guy besides Alan Greenspan who was responsible for engineering the mid- and late-1990s prosperity. A Google News Archive search on ["Robert Rubin" Clinton prosperity] (typed as indicated between the brackets) for 1996 and 2005 returns over 200 results. One of those returned results refers to a Miami Herald article where Rubin is described as “the best (treasury secretary) since Hamilton.”

Even more recently, Rubin, a January 10 Wall Street Journal item on Rubin’s departure from the bank (“Rubin Departs Citi on a Low Note”; HT Paxalles recalls that WonderBob was “an economic adviser to Barack Obama’s campaign.”

But to AP, Bob Rubin is now just “a former Treasury Secretary.” How convenient.

While we’re in the neighborhood: Do Clinton and Rubin deserve credit for the late-1990s economy?

Uh, no. Actually, heck no.

That prosperity of the late-1990s took shape because of:

  • The GOP takeover of Congress in 1994, effective January 1995.
  • The modicum of spending control resulting from the GOP takeover. Even though Newt Gingrich & Co. “lost” the PR battle during the 1995 government shutdown, the restraints (relatively speaking) on spending growth that came about from it paid multi-year dividends. Yesterday, as I listened to Hannity, I was reminded that then-Ohio Congressman John Kasich was a major player in this drama, and deserves mountains of previously unrecognized credit for his role in it.
  • Welfare reform. The Clinton Administration vehemently opposed welfare reform until it realized that the Boy President’s continued vetoes would threaten his reelection. As a result of welfare reform, about a half-million people a year moved government dependency to producers producers of value from 1997-2000. Total caseload decreased by about 2 million a year.
  • The GOP-inspired capital gains tax cut of 1997, which Rubin resisted. This move, more than any other single factor, explains why the federal budget went into surplus in the late 1990s, more than offsetting the negative impact of Clinton’s 1993 tax increases. Of course, the press gave Clinton mostly undeserved credit. But without a GOP Congress, the idea of a cap-gains cut would never have gained any traction.

Getting back to Rubin, the Journal’s January article added that “After collecting $115 million in pay, he (Rubin) leaves with his star diminished.” But apparently not his own bank account.

Did anyone hear Barack Obama or anyone else on the president’s team denounce Bob Rubin’s stratospherically exorbitant reward for failure by name? Didn’t think so.

Given the Obama administration’s relentless talk-down of the economy until his sort-of State of the Union speech three days ago, the quote caption under Rubin’s picture above (“liquidity is psychological”) is bitterly ironic.

Citigroup is really “the Bob Rubin Bailout,” and Rubin’s nickname should henceforth be Bailout Bob.

Cross-posted at NewsBusters.org.


UPDATE: Citi closed the day down over 40% at $1.49 a share. Just one more step in the “borrow-spend-panic-bailout-repeat cycle.”

UPDATE 2: Commenter Gary Hall at NewsBusters reminded me that Rubin asked Bush administration to intervene to delay an impending ratings agency downgrade of Enron debt largely held by Citi in 2001. From the New York Times:

Mr. Rubin, who resigned as Treasury secretary in July 1999 and several months later became chairman of Citigroup’s executive committee, called Peter R. Fisher, the under secretary of the Treasury, on Nov. 8, 2001, after learning that Enron was close to losing its investment-grade rating.

Citigroup stood to lose more than $1 billion that it had lent to Enron if its credit rating was downgraded and the company subsequently collapsed. Mr. Rubin had been asked to make the call by the head of Citigroup’s investment banking unit at the time, Michael A. Carpenter, according to the staff report by the Senate Governmental Affairs Committee.

….. The staff report, expected to be released on Friday, says that ”it does not appear that Rubin violated any laws or regulations in contacting Fisher and proposing that the Treasury Department contact a credit rating agency in connection with Enron’s rating.”

The Great One, Mark Levin, translated at National Review:

Despite all the noise Democrats like Lieberman and Levin made about Enron, and their efforts to tie the company’s corruption and bankruptcy to the president, vice president, and the Republican party, Rubin was the only major political figure who sought to use his influence to conceal the true financial status of Enron. And he did so not out of concern for energy markets, as he apparently told Senate staffers, but in response to a request by Carpenter, the head of Citigroup’s investment-banking unit, who was concerned about a $1 billion loss should Enron’s true financial condition be accurately reflected in its public credit rating.

If Rubin had succeeded in persuading Fisher to intervene with Moody’s, an independent credit-rating company, Citigroup would have been able to minimize its losses by dumping its bad Enron credit on unwitting investors. Talk about insider trading!

In any event, the staff report’s conclusion — that Rubin’s sleazy actions, for which he arrogantly makes no apologies, did not violate any law — is not a decision congressional committees are empowered to make.

UPDATE 3, Feb. 28: More background on Rubin, Citi, and Enron, from an August 1, 2002 Freedom Works open letter

The Honorable Joseph I. Lieberman
Chairman, Senate Government Oversight Committee

….. It is difficult to understand why credit rating agencies Standard & Poor’s and Moody’s failed to downgrade Enron’s debt rating to junk status until December of 2001. While the equity-backed special purpose entities (SPEs) Enron used to keep leverage off balance sheet were not widely known to the public until October 16, 2001, credit rating agencies knew of them since their inception, as they were responsible for issuing a rating on most, if not all of them.

Later it was discovered that many of Enron’s financial dealings contained repayment clauses to be exercised when Enron’s credit rating fell below a specified grade. Clearly, maintaining an investment grade credit rating was critical for Enron and investment banks, like Citigroup, with large exposure to Enron. With such huge sums at stake, both Enron and its creditors could be expected to use what ever means available to avert financial disaster.

Evidence suggests that Citigroup disguised loans to Enron as forward swap contracts to allow Enron to book the transaction as cash flow instead of debt. At the same time, Citigroup is suspected of having sold credit-linked securities to investors to raise capital to be transferred into the same SPEs that stood to receive delivery on the swap. This, in and of it self, could be an act of fraud if Citigroup did not expect delivery of the oil or gas and considered it a loan.

But more importantly, when did Citigroup executives know that Enron depended on an investment grade credit rating and what steps did it take – both through financial dealings and influence – to help maintain it? If Citigroup used the swap contracts to improve Enron’s appearance to bond raters with the knowledge that a downgrade would not only make Enron less able to attract new bondholders, but also trigger repayment options Enron could not cover, this could be a case of securities fraud.

Here’s background from Mark Levin in July 2002, along with more evidence of Rubin unethically attempting to intervene (link is in original):

The New York Times reports that “senior 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 Wall Street Journal reports that Enron “marketed similarly structured deals to a slew of other companies.” And yesterday, the Washington Post (original link in original no longer works – Ed.) reported that Citigroup, along with J. P. Morgan Chase & Co., “transferred billions of dollars to Enron … in recent years in what amounted to loans that Houston energy trader concealed as it struggled to survive .…”

….. Moreover, AP reported that at a March 21, 2002 hearing before Lieberman and his committee, John Diaz, managing director of Moody’s Investors Service, a major credit-rating agency, Diaz testified that Rubin had contacted him about seeking a higher credit rating for Enron. Diaz said nothing came of Rubin’s telephone call. However, this was the second time Rubin intervened in an attempt to keep Enron’s credit rating high.

When asked why credit-rating agencies delayed the lowering of Enron’s rating, Diaz said that Enron executives lied to his agency in the fall of 1999 about its complex web of partnerships and that “material information was missing.”

Consider Lieberman’s remarkable reply: “I feel as if you weren’t as aggressive as you should have been. We have got to look seriously at creating some kind of system of accountability and monitoring of what the agencies are doing.”

Yet, Lieberman knew that Rubin, on behalf of Citigroup — which had an approximate $1 billion investment in Enron and the potential of large merger and other fees in pending deals — on at least two occasions, sought personally to protect Enron’s credit rating.


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