The SEC’s recent settlement with Citigroup wouldn’t even brush back Alex Rodriguez, so it’s certainly not scaring the world’s fourth-biggest bank into compliance. If the banks’ reaction to recent regulation is any indication, Citigroup will just levy more fees on its unsuspecting customers to pay off the $285 million legal tab in a few days.
Ho hum… Citigroup to pay hundreds of millions in a settlement related to subprime mortgage instruments. The SEC crackdown is finally underway!
Yeah right. Though $285 million is a big number on Main Street, in the executive suite of mighty Citigroup it is a rounding error, less than 8% of the bank’s $3.8 billion profit from Q3 alone. Heck, Citigroup has probably paid CEO Vikram Pandit alone close to that amount over the years.
The lawsuit and settlement relates to Citigroup’s sleazy effort to take advantage of the market conditions resulting from the subprime financial crisis. In a sentence, the banks loaded investment portfolios with risky-at-best instruments, neglected to inform their customers of the risk as they sank billions into the portfolios, then surreptitiously bet against the instruments themselves. The more their investors lost, the more the banks won.
The outrageousness of this plan can be illustrated with an analogy to our favorite sport, baseball. Consider Cardinals skipper Tony La Russa convincing thousands of fans to bet on his team in the World Series, not too difficult. Once he’s holding the cash, he benches sluggers Albert Pujols and Matt Holliday and sneaks to Vegas, placing millions on the Rangers. Got it so far? Here’s the rub. When Major League Baseball finds out, he’s fined a mere $75,000. It’s that blatant folks.
Banks like Citigroup have proven time and again that a slap on the wrist like this won’t change the trend towards greed and unimpeded profit-mongering above sound banking principles and just plain ethical conduct. The SEC’s recent settlement with Citigroup wouldn’t even brush back Alex Rodriguez, so it’s certainly not scaring the world’s fourth-biggest bank into compliance. If the banks’ reaction to recent regulation is any indication, Citigroup will just levy more fees on its unsuspecting customers to pay off the $285 million legal tab in a few days. $1.00 to walk in the door of your local branch, $2.00 to use the restroom. Oh, you planned to wash your hands? Please insert an extra quarter.
More concerning than the mere slap on the wrist is that no regulation has been effectively passed and enacted since the crisis to prevent future transgressions. Dodd-Frank has met the immovable object known as partisan obstinacy. Moreover, the Volcker Rule, which would require banks to get back to doing what they do best—perhaps the only thing they can do effectively—which is loan money, is being watered down, bludgeoned and otherwise made an ineffective mess by Gucci-loafered lobbysts from the financial industry. It’s time to stand up to these shenanigans. Mr. President, where are you?
Assisted by David Martin