Sins and the Citi

In the deregulated realm of US banking and finance, crime does occasionally pay for its foul deeds, not in prison time but by making modest rebates to the victims. On June 10 Citigroup, the largest and most flagrant of Wall Street offenders, agreed to provide $2 billion to the injured investors in Enron, the colossal corporate hoax whose ingenious balance-sheet deceptions were engineered by financiers at Citigroup and other leading banks. Another major culprit, JP Morgan Chase, settled a few days later for $2.2 billion. This sounds like a lot of money, but it's trivial alongside the $40 billion or more that shareholders and pension funds lost in the Enron swindle. Citigroup had already paid even more--$2.65 billion--for its role in the WorldCom swindle. No contrition required; pay out some money, get on with business.

We might at least pause to marvel at what the modern bankerly imagination has created: a huge, all-service, guilt-free money machine. Criminal behavior is defined downward into a manageable cost of doing business. For its part in numerous reckless scandals, Citigroup has set aside (or already expended) an astonishing total of $9.8 billion. But since its quarterly earnings run around $5 billion, these costs are easily spread over years (and reduced by one-third after tax deductions). Some financial experts argue that this new beast of megabanking would become still more profitable if it decided to obey the laws. I'm not so sure. Citi's criminal behavior is so far-flung and ambidextrous it seems to be part of the profit structure.

At the dawn of early capitalism five centuries ago, the merchant princes of the Roman Catholic Church were absolved of mortal sins--usually the sin of usury--by paying handsome indulgences to the church. American democracy appears to have re-created a similar system, reflected in Citigroup's rap sheet. In addition to Enron and WorldCom, Citi was implicated in fraudulent collaborations with Global Crossing, Dynegy, Adelphia and a bunch of other corporations. Its high-flying stock touts--most infamously Jack Grubman of its Salomon Smith Barney subsidiary--took care of the corporate insiders by gulling the sheeplike investors and awarding lucrative IPO shares to favored customers and friends. The SEC investigation noted lawsuits alleging that Citi analysts' research reports on companies were "without a reasonable basis in fact." Citi paid $400 million for forgiveness, then paid additional apologies for allowing mutual funds and other institutions to harvest under-the-table profits.

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