Memo To Citigroup CEO Michael Corbat: Does Your Crony Capitalist Plunder Know No Shame?

The times are few and far between that I am in agreement with Senator Elizabeth Warren's brand of Big Government liberalism. But I do applaud her willingness to stand up to the Wall Street lobby machine; her capacity to recognize and call-out the egregious gambling dens that have metastasized there; and her insistence that never again should the hard-pressed taxpayers of America be forced to bailout the crony capitalist plunder that is enabled by the Fed's free money madness.

But now comes a naked Wall Street raid on the taxpayers that's beyond the pale; and it would have sailed right through in the dead of night absent Elizabeth Warren's intrepid opposition. Bravo, Senator!

I am referring to the Citigroup-drafted sneak attack on Washington's tepid effort to curtail the more egregious gambling habits of some of the big banks. These incorrigible larcenists have been trying to gut the "push out" provisions of Dodd-Frank for more than three years now, yet the latter boils down to a simple and urgently necessary injunction to the banks. Namely, you can't roll the dice in the "derivatives" gambling halls with taxpayer guaranteed deposits.

In light of the inherent dangers of what even Warren Buffet once called "financial weapons of mass destruction", it is self-evident that no bank---not even the mighty Citigroup-----should be allowed to bring these incendiary devices within a country-mile of the taxpayer enabled FDIC guarantee program. So what Dodd-Frank does is to say go ahead and swing for the fences, but do it in a holding company subsidiary. If something subsequently goes boom in the night, its on your earnings and bonus-----not the taxpayers' hard earned bucks.

If there was anyone left on Wall Street with a sense of decency and a modest comprehension of what free market capitalism is about, they would not be looking a gift horse in the mouth. The Dodd-Frank provision now under its furious attack was hardly a slap on the wrist. If Congress had really meant to fix the system that supposedly brought us to the cusp of Armageddon in September 2008 it would not have bothered with Dodd-Frank at all----and its incomprehensible 1,700 pages of legislative pettifoggery and 10,000 pages of implementing regulations that metastasize by the day, and will do so as far as the eye can see.

Instead, it should have gone to the root of the problem and passed a Super Glass-Steagall that would have dismembered the giant banks by statutory edict, and kicked the Wall Street based gambling houses like Citigroup out of the FDIC entirely. The fact is, deposit insurance has been coopted and abused by the Wall Street mega-banks for decades, and now stands as a vast perversion of what had actually been intended----misguided or not---way back in the dark hours of 1934.

Back then there were three people in Washington who counted when push came to shove-----FDR, Senator Glass and Congressman Steagall. FDR was against deposit insurance because he thought it would be abused by Wall Street, and for once he was right. Senator Glass was against it, too, because as one of the true financial statesman of modern times he did well and truly understand the dangers of moral hazard and fractional reserve banking propped up by the state.

Alas, Congressman Steagall was a demagogic foe of Wall Street, and only wanted deposit insurance to protect the red-neck depositors of Alabama, who had been taken to the cleaners by banksters of local origin. So we got deposit insurance for the proverbial "little guy" and a sharp separation of banking and commerce at the insistence of Senator Glass.

And for at least a generation, Wall Street----which was still run by the chastened survivors of the 1920s gambling orgies and the Crash of 1929----kept its distance and its lobbyists at home.

By contrast, today we have almost the opposite history. Wall Street is run by a generation that has been bailed-out too many times to count and that has been blatantly and egregiously coddled by perverse central bank theories and practices that have turned the nation's capital and money markets into veritable gambling casinos.

This includes such practices as the stock market "puts", the "wealth effects" doctrine and years and years of ZIRP. The latter is nothing more than free gambling money that can be used to fund the carry trades----that is, using free overnight money to buy anything with a yield or prospect of short-term gain-----and that can be rolled over day after day with the assurance from the Eccles building that the cost of carry is fixed and subject to change only upon ample notice.

In fact, the spoiled rotten generation now running Wall Street is the reason for this post, and why it is addressed to the Citigroup CEO. The unconscionable raid on the taxpayers that Senator Warren is desperately trying to forestall did not occur because Citigroup's hirelings were sitting around K-Street looking for an issue on which to bill their client.

No, the command to mount this despicable attempt to take the entire budget of the United States hostage in the middle of the night came straight from the C-suite at Citigroup. So just consider the monumental hutzpah of Michael Corbat and his Wall Street confederates.

In point of fact, these unvarnished crony capitalists have been trying to gut Dodd-Frank and especially the Volcker Rule and the "push out" standard for more than three years.  But their case is so threadbare and self-serving that they could not even buy the necessary votes---notwithstanding millions of PAC contributions and every accouterment of the lobbying trade at their disposal---through the normal legislative process. Their "push out" slam-down was, in fact, a dead letter on Capitol Hill.

So now they have resorted to a road so low that it cries out for condemnation. Owing to its usual dysfunction, Congress has once again failed to pass the appropriations bills for the current fiscal year which has been underway for 80 days now. Therefore it is again punting via a giant omnibus appropriations bill authorizing $1.1 trillion of spending in 1600 pages of fine print, bedecked with prodigious helpings of pork, that no one could have possibly read or comprehended in the couple of days since it was fashioned in the backrooms during the wee hours of the night.

In short, the so-called "Cromnibus" caper is disgusting enough in its own right. But the fact that the CEO of Citigroup has ordered his henchman to pile-on is stark testimony to the insuperable arrogance of the generation which now runs Wall Street; and to its sheer sense of "entitlement". That is, its belief that Washington is there to do "whatever it takes" to insure that Wall Street profits are fattened one more quarter----so that the share prices of the gambling halls which operate there, and the executive options and bonuses of the executives who run them, will never fail to advance.

Yes, Michael Corbat is a Citigroup "lifer" and is just doing his corporate duty in behalf of shareholders. But that's precisely the problem. There should be no Citigroup "lifers" whatsoever------ because their should have been no Citigroup left standing. In fact, "C" is testimony to the financial folly of the last three decades.

Folks, banks are not free enterprise institutions; they are wards of the state that would not even remotely exist in their current Wall Street incarnation without the state subsidies and safety nets implicit in the Fed's discount window, where they can get unlimited zero cost money at a moments notice; and in deposit insurance, which essentially shields their balance sheets and asset management practices from depositor scrutiny; and most especially, their banking licenses from the state and Feds that shield them from a whole range of legal liabilities and exposures that would otherwise prompt a far more prudent and stable business model.

So the point is, the monstrous string of incomprehensible and unmanageable bank and financial services mergers that Sandy Weill rolled-up over two decades should never have been permitted. The repeal of what remained of Glass-Steagall in 1999, which permitted the merger of Travelers and Citibank, should never have happened. The regulatory acquiescence in the 30:1 leverage ratios achieved by the Wall Street brokers, including the vast investment banking operations inside Citigroup, during the Greenspan housing and credit boom should never have been tolerated. The trillion dollar off-balance sheet SIVs created by Citigroup on the eve of the last financial crisis should have been stopped cold. And most crucially of all, this rogue financial behemoth should have been put out of its misery by the FDIC when it failed in 2008 and its screaming insolvency was covered up by multi-trillion bailouts from the Fed and TARP.

Here's the thing. Michael Corbat is a "lifer" from this whole misbegotten chapter, going back to his days at Salomon Brothers and his rise through the Sandy Weill machine and all the departments and far-flung operations of Citigroup after it finally came together.

I have no clue about what he learned about banking along the way. But there is absolutely no doubt that what he did learn over that journey is that Washington exists to do Wall Street's bidding.

The truth is, the generation represented by Michael Corbat knows nothing about the idea of the "public interest" as opposed to private advantage. It is steeped in the practice of crony capitalism, but it knows nothing of free markets.

And after all these years of Washington's rank servility, it now thinks taking the people of America hostage in the middle of the night is all in a corporate day's work.

Shame, indeed.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.