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More on stupid bankers

March 8, 2014 - Harry Eagar
A week ago, RtO had a nostaligic post ("This is where I came in," March 1) about the good ol' days when American bankers threw money away in Latin America. I noted that Citigroup, despite the billions it spends on corporate image-falsification, was unable even to get out 2 press releases that did not contradict each other.

Citi has done it again.

To recap, it looks as if Citi's big Mexican subsidiary was paying fake invoices for years and nobody noticed. The losses admitted so far are around $400 million, which in the modern money-of-account (no, not Bitcoin, silly, Solyndra), or one Solyndra.

A report today at Bloomberg News suggests that Citi doesn't object just to government regulation. It isn't interested in self-regulation either:

"Efforts by Citigroup Inc. (C) senior executives to tighten controls in Mexico were rebuffed by managers there for at least five years before the U.S. bank found the local unit had suffered a $400 million loan fraud last month, four people with direct knowledge of the matter said.

"Employees at Grupo Financiero Banamex SA process[ed] some documents by hand instead of using modern information systems that make it easier to detect flawed loans, said another person. . . .

"Banamex, Mexico’s second-largest lender, snubbed efforts to integrate systems with its New York-based parent and was slow to improve controls, technology and corporate governance, the four people said."

I am completely unsurprised, especially when we learn that Banamax was reporting very large profits. Nick Leeson, call your office. (Leeson was the trader who reported very large profits for Barings until it failed. I reviewed his book way back before there was an RtO.)

(For the record, RtO has no plans to write about Bitcoin. While amusing, it is insignificant. Nor was it, as some naifs in the business press have written, a Ponzi scheme. It was more like selling watered stock, if you want a financial comparison; but was really just a variation on the old gold brick con -- "I have this gold brick I want to exchange for cash, but I need your help. It is worth $10,000, and I will split 50-50, but you have to prove your sincerity by putting up $1,000. Thank you for the cash; here's your gold brick, wrapped in newspaper. Oh, look at the time. I gotta run. Good dealing with you."

(RtO estimates the residence time of government money deposited with Mt. Gox at under 10 minutes.

(I do not for one minute believe that the Mt. Gox losses were really a Solyndra. The amount of real assets moved into Mt. Gox was much less.)

What I love about the Bloomberg story (aside from the fact that Bloomberg is showing its usual tenacity) is the latest Citi press release:

“ 'We dispute assertions by anonymous sources peddling theories that the management team is somehow unaccountable or autonomous. While Banamex is a subsidiary of Citi, it is absolutely subject to the same risk, control, anti-money laundering and technology standards and oversight which are required throughout the company.' ”

Lord help us, I believe the second sentence is 100% accurate.


Article Comments



Mar-23-14 4:54 AM

Snowden had to go to Russia because America is filled with Jeffrey Toobins and OneAikeas.

People like you think it is ok for the government to illegally spy on Americans without warrants, even when this is a clear violation of the 4th amendment. You ARE the problem, and the reason he had to go to Russia.


Mar-18-14 2:50 PM

Harry would you argue that the Krona was critical to Iceland's economy? Yes or no please. Would you argue that the economy of Iceland was heavily intertwined with the financial sector? I would imagine yes.

They used all the same scare tactics in Iceland that they used here. The difference is that the people of Iceland didn't buy it but the sheep of America did. Americans will believe anything their government tells them. "Letting the banks fail will wreck the economy!" Disney couldn't make this stuff up because nobody would believe them.

Letting LIVE has absolutely destroyed our economy, and there will be no coming back from it. America's solution to "Too Big To Fail:" Make them EVEN larger and MORE prone to failure!


Mar-11-14 4:36 PM

Not comparable. The Iceland krona is not the world reserve currency; Iceland's banks were not critical to the world financial system.

I'm all for jailing corrupt bankers but first you avoid wrecking the world system.

I do not think any particular interest rate regime is perfect. We could wring 25% out of the health system overnight ny going to single-payer but that would cost millions of jobs and, formally at least,put the economy into recession.

It would be painful but salutary in the long run by (among other benefits) making US firms more competitive internationally.


Mar-11-14 2:55 PM

And let's not forget about the role that the Federal Reserve played in all of this. There are currently NO theories that can explain how ANY of this would have been possible without the artificially low interest rates caused by the Fed. And they are STILL doing this because the American economy probably can't handle anything hire than 0-1% interest.

The Fed created the housing bubble from their earlier work trying to "ease" the dot-com bubble. Now they are trying to "ease" the housing bubble by doing the exact same thing. Each time they create an even larger bubble that is going to pop. Last time it was concentrated in housing, now look to education and health care for costs that have exploded beyond all proportion to the service that is provided.

We've been coasting at a historically unprecedented 0% interest rate for years now. The reality is that the American economy can't handle higher interest rates, and low interest rates lead to borrowing and spen


Mar-11-14 2:48 PM

A tale of two countries: America and Iceland. In both countries, a financial crisis spread throughout the system. In both cases, the media, government, intelligentsia and other "experts," all claimed that allowing the banks to fail would cause widespread chaos and destruction.

Americans, being naturally subservient sheep to their corporate media masters and government, decided that what is best for Goldman Sachs is best for America.

Iceland decided to let their banks fail. Instead of bailing out the banks, they bailed out the people that the banks screwed over. This despite all of the "experts" telling them that this would be total chaos.

America has a unique economic system; socialism for the rich and capitalism for the poor. Yes, the banks should have failed. Your "solution" is to make them even bigger and more prone to failure, and that will end in a complete disaster within our lifetimes.


Mar-09-14 3:52 PM

Well, they could have let the financial system collapse. Is that what you want?

The failures were before the bailout, when regulation was abandoned; and after, when regulation was not re-adopted.

Given Reaganism, the market crash and the need for bailouts was preordained.


Mar-08-14 5:45 PM

Good thing our glorious president and esteemed members of Congress decided to bailout these poor banks and corporations. They are really standing up for the middle class!

Remember, what is best for the banks is, ultimately, best for America! At least if you ask our government, that is.


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