The Wall Street Journal — the BFF of American big business — is calling for the breakup of Citibank and the firing of its board of directors. Here are the concluding paragraphs of its editorial this morning:
While other banks can claim to be victims of the current panic, Citi is at least a three-time loser. The same directors were at the helm in 2005 when the Fed suspended Citi's ability to make acquisitions because of the bank's failure to adhere to regulatory and ethical standards. Citi also needed resuscitation after the sovereign debt disaster of the 1980s, and it required an orchestrated private rescue in the 1990s.This caught my eye for several reasons. First, my belief that firms that are “too big to fail” either need to be allowed to fail now, or be made smaller so next time they can fail next time.
Such a record of persistent failure suggests a larger -- you might even call it "systemic" -- management problem: If taxpayers have to risk so much to save Citigroup, then regulators should at least exert the discipline to break up this behemoth so it is never again too big to succeed, much less to fail.
Secondly, Citibank has engaged in some of the most egregious lobbying, as when Robert Rubin (onetime Clinton Treasury Secretary) pushed to protect Enron from reduced credit ratings and bankruptcy. (Citibank later paid $3.7 billion in damages for protecting Enron). Given how Enron was the symbol of business corruption earlier this decade, why has Rubin escaped any damage to his reputation?
In a real free market, failure has consequences, and those responsible for failure are held to account. The alternative is corporate socialism — i.e. France, the UAW or a nationalized auto industry.
The big banks should be an easy call: they collect lots of money when times are good and make taxpayers foot the bill when times are bad. It should be one or the other — government wages with government guarantees, or free market wages with the free market risk of failure. (Not to mention shareholders who fire managers who mess up).
So far, Obama has resisted the temptation to write a blank check to Detroit, but even if he stands tall, there will be many other opportunities for politically connected fatcats to feed at the public trough.