Captured: A Former Banker’s View

My decision to “Crowd-Source” Written Off – America and Americans, is being blessed with page after page of contributed material that prove that you and I do not need to know it all – we simply have to attract – and listen to -people who absolutely do know more than we do about a particular subject.

This has especially been proven in the subject of banking and in the quality of people responding.

When I envisioned a chapter on Banksters…er, bankers, I realized that if I were to write this as a lay person whose only connection with banking was a depleted line of credit, I would simply be another “Me, too” guy jumping on the let’s-kick-the-bankers bandwagon.   A professional view was called for – from within the ranks of the industry in question.

Through a LinkedIn group, I connected with banking veteran  Amer Chaudri.  Amer provides a Main-Street, on-the-beat approach and observations on this over-exposed subject that are both understandable as painfully on-point.

His upcoming book – Diatribe – lays out the details as to how Wall Street – and Our Government – are entertwined to our detriment – so tightly that at this point that practically neither can be totally trusted.

Here are a few snippets from Diatribe that Amer is sharing with us:

“If we’ve arrived at a stage where the write-offs of our worth, the fabric of our economic system and of moral-equity have come to pass, then it is not possible to have arrived here without a subversion of principles and ideals that have served us for almost two centuries.

I will focus on the first of two factors which relate to my professional experience as an analyst and planner in the banking/financial community – the evolvement of ideals and principles and the sense of responsibility by the individual.

The immense fallout in the Great Recession of 2008/2009 has been alarming. This has been a credit crisis and an economic crisis. I would add another dimension: a ‘management crisis,’ as well.

Some history:  In 2008, my then employer, Citigroup, announced in its 2nd quarter earnings that it will be taking an $8 billion loss on its portfolio of securitized sub-prime mortgages. This ignited a conflagration across the industry as we discovered the extent to which sub-prime was woven into the fabric of the credit markets.

A few quarters later, Citigroup had racked up $58 billion in sub-prime related losses—the industry at large suffered $500 billion in losses. These losses, in turn, ignited an even wider economic fallout.

The natural question was: How can a high-risk fringe-instrument like sub-prime that catered to high-risk borrowers become so central to our financial system?

Sub-prime was one rather large tip of the iceberg. We then learnt that the GSEs (Government Sponsored Enterprises) of Freddie-Mac and Fannie-Mae had indulged in an orgy of high-risk mortgage-products such as no-down-payment, interest-only, short-term ARMs—even a combination of these.

According to the US Congressional Budget Office, the fallout in Freddie-Mac and Fannie-Mae would cost the tax-payer around $291 billion. These numbers do not even begin to speak to the wider economic impact of millions of jobs lost and the devastation in the housing market and businesses which has no doubt caused significant damage the enormous trust the public places in our government and business leadership.

These problems emanate from the subversion of principles and the fundamental laws that uphold them.

My former employer was at the forefront of the lobbying effort to repeal the Glass-Steagall Act that was instituted as a clear and determined prevent to stop another The Great Depression by sequestering street-banking, insurance, and investment-banking from each other.

This repeal allowed Wall Street to reintegrate these fundamentally different segments of finance. Citigroup went on to manufacture high-risk portfolio vehicles called Structured Investment Vehicles (SIVs) that concentrated credit card and sub-prime debt. Investors as well as banks were able to subscribe to these vehicles.

The proponents of this scheme argued that since this debt was now taken off the books of banks and lenders, and subscribed to by multitude of investors, the risk was well diversified and the envelope could be “pushed” to increase the portion of US household debt. A “pure greed” play, but activity small in comparison to the expansion of the high-risk mortgage debt perpetrated by Freddie Mac and Fannie Mae.

If economic activity is based on the expansion of consumer debt, then not only is this flawed planning, fictitious economic-growth, but it has compromised the economic integrity of individuals and households.

Such a lapse had occurred because too many CEOs from Wall Street have been handed the reins of the Dept. of Treasury and the Federal Reserve. For example, the former Secretary of Treasury, Robert Rubin (also a former Goldman Sachs Chief) was recruited by Citigroup and is credited with forwarding the campaign to repeal Glass-Steagall.

The issue with Freddie Mac & Fannie Mae is similar. Permitted to operate as private enterprise, their executives’ compensation packages rivaled those of Wall Street CEOs; they mirrored each other in their pursuit of profit at the expense of the public trust.

Government subsidies and tax payer dollars made their way to lascivious lifestyles in a saga of corruption at the helm of the free and civilized world. Former Fannie Mae CEO Franklin Raines took in $91 million in compensation between 1998 and 2003. Even as late as 2009, the compensation of Freddie & Fannie executives was around $19 million.

There is something decidedly wrong with this picture, and recent history has proved this. This is evidence of the moral deficiency of business leadership, dysfunction of government, and the robbing of public trust. I don’t see how, under these circumstances, we can afford to sit back and hope for the best…”