The headlines in the financial press lately sound like a litany of Homer Simpson's three little sentences that will get you through life:
Number 1: Cover for me. (Citigroup to - allegedly - Oliver Wyman for recommending it enter into structured finance).
Number 2: Oh, good idea, Boss! (Alan Greenspan on how Congress would not have let him put the brakes on the housing bubble.)
Number 3: It was like that when I got here. (Robert Rubin testifying to Congress about his time at Citigroup. )
I'd like to add my own little sentence to Homer's:
Number 4: "Everyone does it." (Repo 105.)
Citi entered into collateralized debt obligations for the same reason every other bank did - because everyone was making money on them. So what if a consultancy produced a study that showed that CDOs were as harmless as fluffy clouds and could make a shed-load of money? Shouldn't the bank have done a little due diligence before jumping in? Blaming (allegedly) Oliver Wyman is shooting the messenger.
Alan Greenspan - had he read the foreign press - should have known full well that the US government was creating a housing bubble to replace the burst dot-com bubble. Money had to go out of consumers' pockets one way or another in order to support the economy. Buying and fixing up houses is one very efficient way to spend a lot of money. He is right not to allow Congress to throw him under the bus, but he should have been a lot tougher with them at the time. If indeed he suspected there was an issue.
Robert Rubin, became a 'senior advisor' at Citi after he had systematically dismantled Glass-Steagall, which gave Citi and others the chance to dabble in investment banking (read: trading). After receiving over $125 million in total over 8 years to 'advise' Citi, he told Congress that he was not responsible for looking at Citi's activities with any real 'granularity'. Eek. What exactly was he looking at then? (He could also be compared to Sergeant Schultz in Hogan's Heroes: "I know nothing! Nothing!" )
The Wall Street Journal on April 8th reported that most of the major investment banks had masked their debt levels, hence risk exposure, by using repos. Shock, horror in the financial press. How could this have happened without us knowing? Hellooooo. End-of-year balancing is rife for trading companies, whether they use repos or stuff things off-balance-sheet or roll positions forward. One way or another they will boost the coffers for bonus calculation. (Haven't they ever met a trader?)
Whatever happened to accountability?
BTW, Goldman Sachs is channelling Lisa Simpson instead of Homer. Accused of 'betting against its own clients' it stood firm in its annual report by defending what it did as normal trading practices and hedging. Which is true. But a few clients might have stepped in the way when they shouldn't have and got burnt.
As Lisa said: "You can't create a monster, then whine when it stomps on a few buildings."