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Citigroup, Heal Thyself

by Ralph Nader

Last week Citigroup, the nation’s largest financial services holding company, trotted out one of its top executives, Robert Rubin, to spread some soothing words about how to clean up the corporate scandals and repair the sagging stock market.

Rubin’s (and Citigroup’s) message appeared as a lengthy op-ed in the Washington Post under the headline “To Regain Confidence.” As former Secretary of Treasury in the Clinton Administration, Rubin commands a following, particularly in the financial press so important to Citigroup’s vast empire.

The need for Citigroup to use Rubin to pose as an ally of reform became obvious two days later when the Senate Permanent Subcommittee on Investigations released hundreds of pages of documents that the Subcommittee Chairman Carl Levin said proves that Citigroup and J. P. Morgan Chase “knowingly assisted Enron Corporation in disguising debt by structuring sham financing vehicles.”

The scheme not only facilitated Enron’s deception which cost investors and employees hundreds of millions of dollars, but earned more than $200 million in fees for Citigroup and J. P. Morgan Chase.

Citigroup’s Rubin didn’t provide an inkling of his bank’s complicity in the Enron scandal when he penned his piece for the Washington Post. But he may well have had Citigroup’s secret involvement in mind when he argued that “regulatory and legislative changes and enforcement should be balanced and appropriate.”

With the revelations pouring out of the Senate hearing, it is understandable that Citigroup and its executives would be entering a plea for “balanced and appropriate” enforcement-a light tap on the wrist, perhaps.

At least one Senator at the hearing-Peter Fitzgerald of Illinois–raised questions about how many of the current scandals could be blamed on Congress’ decision in 1999 to allow banks, insurance companies and securities firms to merge and form giant financial conglomerates such as Citigroup.

That question must have troubled both Citigroup and Rubin who played such major roles in the enactment of the legislation-Rubin as Secretary of the Treasury and Citigroup as the biggest beneficiary of the action. Rubin left the Treasury in July of 1999 and Citigroup announced he had been hired by the corporation on October 26-four days after the final compromise was reached on the legislation.

In answering Senator Fitzgerald’s question about the wisdom of the 1999 legislation which merged banks and securities firms, Lynn Turner, the former chief accountant of the Securities and Exchange Commission, said “securities firms and banking firms can’t be working together, entering into transactions together and using the security arm to try to get banking business.”

That echoed what many of us warned the Congress about repeatedly when the legislation was being hammered through by Rubin and Citigroup and the biggest players in the financial industry. The lobbying, greased with record campaign contributions from financial services corporations, drowned out all warnings about the dangers now so apparent in Enron and other corporate debacles.

For consumer and community organizations around the nation, the new revelations about Citigroup should come as no surprise. Community groups have been trying for years to get legislative and regulatory action that would halt predatory lending and other deceptive practices by Citigroup’s affiliates.

Citigroup became the nation’s largest predatory lender when it acquired Associates First Capital in September 2000 and merged it with another its subsidiaries, CitiFinancial Credit. Last year, the Federal Trade Commission (FTC) filed lawsuit against Associates First Capital, Citigroup and CitiFinancial Credit Company seeking an injunction against unfair and deceptive lending practices.

Here is what Jodie Bernstein, director of FTC’s Bureau of Consumer Protection, had to say about the practices of the Citigroup affiliates:

“They hid essential information from consumers, misrepresented loan terms, flipped loans and packed optional fees to raise the costs of the loans. What had made the alleged practices more egregious is that they primarily victimized consumers who were the most vulnerable-hard working homeowners who had to borrow to meet emergency needs and often had no other access to capital.”

Last year, Citigroup paid $20 million to North Carolina customers of Associates and $300,000 to the state to settle allegations that consumers had been tricked into buying expensive and unneeded credit life insurance as part of their mortgage loans. The New York Times reported last fall that Citigroup had settled 200 lawsuits pertaining to practices of Associates with at least twice that number still pending in the courts.

But, these facts, like the funny money games now revealed in the Senate hearings, were strangely missing in Robert Rubin’s lengthy rendition in the Washington Post about actions that were needed for the nation to regain confidence.

To paraphrase an old adage: Citigroup, heal thyself.

For information about what you can do to help create a Financial Consumers’ Association, visit


Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

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