Citigroup and Prince: Too-Risky Business
By Steven Pearlstein Wednesday, November 7, 2007; D01
. . . What Prince never quite realized, however, was that Citigroup's problem wasn't that its people didn't know right from wrong.
No, the bigger and more encompassing problem was that the company and its top executives were never very good at assessing risk -- whether of cutting ethical corners and getting caught, or that certain kinds of loans would go bad, or that the market might turn this way or that.
This knack for misgauging risk dates at least to the 1980s, when the old Citibank got in trouble with its excessive lending in Latin America. It was true in the late '80s and early '90s when the bank got in too deep with commercial real estate lending and had to be rescued by a Saudi prince. It was true during the tech and telecom bubble of the late '90s. And it is still true today, as evidenced by Citigroup's headlong rush into mortgage-backed securities and off-books investment vehicles that have already resulted in write-offs of $8 billion to $10 billion.
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Between bail-outs here and there, Sandy Weill created a paper-tiger at Citigroup based on growth and greed. It was very nearly a pyramid-scheme dependent upon conglomerating at a rate sufficient to hide all the bad judgment.
It made Weill billions.
It made him look like he knew what he was doing.
It made people listen when he spoke at the dinner-table.
It made him (personally) the very big problem that must be overcome on the way to squeezing the suds and cruds out of Citigroup.
Betcha that won't make him any less of a guru to the moneyed crowd.