Posted by troublemaker on December 7, 2011
When Occupy Wall Street began, it vowed “to end the monied corruption of our democracy”. Since that time, the movement has grown in many different directions but always kept at its core the central objection to government representing the 1% more than the 99%. We think the story of Robert E. Rubin explains what happens when big business and big government swap spit.
After 26 years with Goldman Sax, Robert E. Rubin was the U.S. Secretary of the Treasury during both of President Bill Clinton’s administrations. While working in the Whitehouse, Rubin helped to design the Commodity Futures Modernization Act and steer the repeal of the Banking Act of 1933. After leaving government service, he took positions at Citigroup where he was compensated with more than $126 million dollars in cash and stock. He resigned from Citigroup on January 9, 2009. (1)
Previous to Rubin’s position as U.S. Secretary, conduct by incorporations like Citigroup were illegal due to the Banking Act of 1933(2) (aka Glass-Steagall Act of 1933). Rubin was principally responsible for steering the repeal of that act which President Bill Clinton signed into law on November 12, 1999. As Secretary of the Treasury, Robert Rubin was the man Bill Clinton turned to for help on that decision. Detractors of this repeal claim it once again allows serious conflicts of interest between commercial banks and investment bank, allowing these two styles of business to be owned by one company. Years later, detractors seem to have been proven correct.
Recently, Citigroup was ordered to $285 million dollar fine to the SEC for “misleading investors” while Robert Rubin was the chairman of Citigroup. (3)
Designed by Robert Rubin before leaving the Whitehouse, the Commodity Futures Modernization Act was signed into law by President Bill Clinton on December 21, 2000. This act allowed for unregulated trade in a class of banking product called ‘derivatives’. For the purpose of this discussion, the most important of these derivatives is the ‘Credit Default Swap’ (5). The Credit Default Swap is essentially an insurance policy against a loan default.
Think of a home owner’s insurance policy. If your house burns down, the insurance company pays to rebuild it. Now ask yourself, how many home owners’ policies can exist on one home? Can you insure your home 10 times and expect to be paid 10 times its worth should it burn to the ground? Of course not. That is where the Credit Default Swap differs from traditional insurance. A loan can be insured for many times more than its value and that loan can be insured by people who do not have an interest in the loan itself.
The short of Citigroup’s conduct was to take sell bundled high risk mortgages to investors while betting against those same mortgages via Credit Default Swaps. Although they represented the quality of those mortgages to their clients and collected fees when they were sold,, at the same time Citigroup seems to have been secretly betting the mortgages would fail. Either way, they made money, a situation which the Banking Act of 1933 specifically forbad until Rubin helped its repeal in 1999 on a product which Rubin helped to become deregulated in 2000.
Of course Citigroup paid Robert Rubin $126 million dollars in cash and stock. He was worth every penny as he helped make Citigroup legal via the repeal of the Banking Act of 1933 and later helped deregulate the instrument Citigroup used to make millions more by misleading investors (Derivatives and the Credit Default Swap).
Now ask yourself, do you have a Citi card in your purse or wallet? If you use that card, are you not supporting this type of behavior? Make a difference. Occupy Christmas by transferring any balance to a local credit union or reputable bank. Refuse to use your Citi card. Refuse to bank with Citibank. Occupy Christmas and make a difference.