The downfall of Citigroup has taken place over a long time and involved many people, but attention is now focussing on the role of Robert Rubin, the former US Treasury Secretary, who is a Citi director and senior adviser and was briefly its chairman.
Mr Rubin has had an influential role at Citi since being brought on board by Sandy Weill in 1999 but has not been an executive. Having formerly been co-chairman of Goldman Sachs, he preferred to exercise influence behind the scenes.
He described his role thus when I interviewed him last year:
“People come by and want to talk about things. Some are unhappy with their jobs, others want to talk to me about how to approach a client or a government. My entire staff is two secretaries. That’s who reports to me.”
Now, of course, a big loss has been disclosed at Citi and various people are asking what Mr Rubin had to do with it. That was among the subjects covered in a long article in The New York Times on Saturday. It found that Mr Rubin and Chuck Prince, Citi’s former chairman and chief executive, played “pivotal roles” in the bank’s disastrous push into underwriting and trading collateralised debt obligations. Read more
Tim Geithner, the new US Treasury Secretary-apparent, is very like his new boss.
First, they are the same age. They were both born in August 1961.
Second, they both have a modest, likeable manner (despite being ambitious and self-assured).
Third, they are both thin and youthful-looking.
Fourth, they both had an Asian upbringing. Mr Geithner went to school in Thailand, Mr Obama in Indonesia.
Fifth, they are both cautious, pragmatic policy wonks.
All in all, they should be able to work together well. Read more
Since the heads of the big three Detroit car companies have been told to go away on their private jets and come back with an actual plan for saving themselves, the prospects for a no-strings bailout by the federal government have dimmed.
Even Barack Obama’s transition team seems to be exploring the idea of planned Chapter 11 bankruptcy instead.
I believe that pre-packaged Chapter 11, with GM and Chrysler merging as part of the deal, is the best way forward for an extremely troubled industry. That is the approach backed by Jack Welch, and here are my own reasons for supporting it:
First, it provides a plausible path forward. Even the Democratic lawmakers who were inclined to give the Detroit companies up to $25bn could not justify it to themselves or the voters, faced with companies that could not explain how it would help in the long-term.
Rick Wagoner of General Motors estimated the long-term level of US car sales at 14.5m, which is a big fall from the peak. That in itself implies that the car companies need to restructure and shrink. But there is no evidence of how this would be done – or if it would be – outside Chapter 11. Read more
Wall Street is clearly going to cut bonuses this year, and next year does not look promising either. But financial industry types have not given up the hope of an eventual return to a system based on taking 50 per cent of revenues for the annual bonus pool.
Personally, I am sceptical about that for a couple of reasons. Read more
I am not sure quite what lesson to draw from the fact that Twilight, the vampire film that opens tomorrow, and could become a new Harry Potter-style franchise (for teen girls at least), has been made by a tiny studio after being dropped by Paramount Pictures.
The New York Times has an article this morning detailing how that fact that Paramount let Twilight and the other three books in the series by Stephenie Meyer slip through its fingers in 2006. It says that a “game of finger-pointing” is underway at Paramount. Read more
My FT column this week is about Jerry Yang and why founders can make bad CEOs. Read more
Further to Felix Salmon and Jim Surowiecki’s comments on the myth that Detroit auto workers cost $73 per hour to employ – that includes the healthcare and pension benefits of former employees – it seems unfair to me to blame the United Autoworkers union for Detroit’s plight.
Of course a union tries to get high wages and benefits for its members – that is what unions are for. The fault for Detroit’s relatively high labour costs ultimately lies with the managements of these companies, or to be more exact the former managements, for taking on liabilities that they could not afford. Read more