Former Citigroup Execs Contrite On Financial Crisis
MELISSA BLOCK, host:
The congressional panel looking into the causes of the financial crisis heard today from the former CEO of CitiGroup, Charles Prince. And what they heard was an apology.
Prince was joined at the table by former treasury secretary and CitiGroup director Robert Rubin, who also expressed regret. But Rubin still defended the Company's use of risky derivative products.
NPR's Jim Zarroli reports.
JIM ZARROLI: Charles Prince was forced from his job in November 2007, after news broke that CitiGroup had suffered devastating losses in the subprime mortgage market. Today, he took his seat before the commission a chastened man.
Mr. CHARLES PRINCE (Former CEO, Citibank): 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.
ZARROLI: With the benefit of hindsight, Prince said it's clear the crisis was caused by a confluence of factors: a long period of low interest rates, a dangerous boom in securitized mortgage products and an overreliance on faulty financial models to gauge risk.
Mr. PRINCE: As a result, investors were reaching for yield, and many people, from investors to traders to rating agencies to regulators, believe that a new era of generally lower risk had begun.
ZARROLI: In this heady environment, Citigroup became a big investor in derivatives tied to the mortgage market, and once the housing industry collapsed, the company lost many billions of dollars. Both Prince and Rubin were repeatedly asked whether they knew how risky these investments were. Rubin said as a senior executive you can't really become granularly involved in investment decisions, all you can do is hire the right people and lean on their expertise.
Mr. RUBIN: But there isn't a way, in an institution that has hundreds of thousands of transactions a day, and probably something over a trillion dollars a day running through it, that you're going to know what's in those position books. And I didn't know it when I was running Goldman Sachs and you wouldn't know it sitting on the board of Citi either. You really are depending on the people who are there to bring you problems when they exist.
ZARROLI: And Rubin said Citigroup's risk managers considered the investments extremely safe - everyone did. Commission member Heather Murren then asked, doesn't that suggest that there was something wrong with the bank's risk management models? Rubin seemed reluctant to hand out blame.
Mr. RUBIN: In the instance that we're talking about, you had a particular set of instruments, these triple-A instruments, that simply weren't viewed. And I think, understandably, given the way that triple-A had been viewed the entire time, the many decades I was in the street...
Ms. HEATHER MURREN: But we're...
Mr. RUBIN: ...that weren't viewed...
Ms. MURREN: ...we're talking about processes.
Mr. RUBIN: Yeah, no, I think the processes were very strong.
ZARROLI: Rubin said he knew there were excesses in the financial markets that might one day lead to a recession. But he never knew the extraordinary combination of powerful forces that were about to come together and do so much damage to the economy.
Mr. RUBIN: We all bare responsibility for not recognizing this and I deeply regret that.
ZARROLI: Now it's clear, he says, that big changes need to be made in the regulation of the financial markets. There should be new restrictions on leveraged lending, oversight of derivatives and better consumer protections. Many of these are key parts of the regulation efforts already being discussed in Congress.
Jim Zarroli, NPR News.