A year ago, Citigroup was trading at $30. By the end of last week, it was at $3.77. And by the end of the weekend, the government had agreed to inject $20 billion of straight capital, shoulder any losses beyond $30 billion, and essentially insure $307 billion in assets. In watching most of their net worth get gouged out as downside risk became inescapable reality, Citigroup isn't that different from many other banks right now. But their failure has certain unique resonances, not least because former Treasury Secretary Robert Rubin, who spent the last few years in a central advisory role at Citigroup, is heavily implicated. Indeed, The Times reports an unnamed senior executive at Citigroup saying, "Chuck [Prince, the CEO] was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’” In the reporting on the internal machinations of various banks and reflections of various traders, you often hear risk bandied about in this sense, as the thing that made people money. The quotes read as if, after 15 years of incredible stock market expansion (interrupted briefly by the puncturing of the tech bubble), the investment profession had ceased to viscerally believe in downside risk and had convinced itself of the inevitability of profit. Indeed, the hagiographic literature
on investment banks treats traders who gritted their teeth as they lost $300 million on investment banks treats traders who gritted their teeth as they lost $300 million of other people's money in a bet that eventually netted than $800 million as almost mythic creatures. Their reputations far exceed those who were conventionally successful. The awe is not attached to the earnings, but the steady confidence in the face of risk, and even loss. Trading seems to have taken on the ethos of craps rather than poker. The next line here is that it's all well and good to take incredible risks when you're betting other people's money. True enough. But the more relevant reality is that it's easy, and even essential, to take incredible risks when everyone else is doing the same thing. The general argument right now is that these traders are suffering because they are disgraced. Maybe. But frankly, they're almost all disgraced. Which means that none of them are. Professional disgrace is a relative state of being. It exists only in contrast to colleagues who remain in good standing. But so many banks made the same awful bets that no one could really be more disgraced than anyone else. There was a lot of financial risk, but very little professional risk. Meanwhile, imagine you'd been CEO of an investment bank that judged these assets trash, and you tried to keep your institution out of the game. You would have been courting disgrace. Everyone else dove into the pool of subprime mortgages and reaped incredible profits. Your bank's returns were anemic in comparison. If the mortgages hadn't busted, or hadn't busted quickly enough, your shareholders would have demanded your ouster. Maybe you would have been eased out in early 2007. You would have been disgraced. Right, but, at least for a time, disgraced.
