Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi

The numbers are staggering: "capital injections of $45 billion as well as hundreds of billions of dollars of help in the form of commercial paper sales, asset guarantees, debt guarantees, and liquidity assistance" that all went to just one institution. It was the most generous government assistance provided during the financial crisis we found ourselves in the midst of a decade ago. And it went to Citibank, which should counter the popular narrative about what brought the world financial system to the brink of collapse in 2007 and 2008. 

James Freeman and Vern McKinley help unearth the backstory and broader picture of Citi's influence in Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi.

"If Citi isn't systemic," Treasury Secretary Hank Paulson declared, "I don't know what is." That is undoubtedly true, but it has been for two centuries now, and it not only successfully weathered crises for much of that history, but came out of them stronger. Yet, it is so influential that it also (perhaps unfairly) took a significant part of the blame in popular opinion for the Great Depression. Strangely, Citi did not fit in the popular narrative of blame assigned in 2007 and 2008, even though it "essentially invented [the] structured investment vehicles for conducting business off-balance sheet" that would prove to be so disastrous. 

The story of Citi simply does not fit Washington's explanation of the crisis. Financial regulators and the Wall Street megabanks they oversee like to say the crisis was concentrated in the so-called shadow banking system, the gray area occupied by nonbank financial institutions that were outside the more heavily regulated commercial banking sector. … But because Citigroup was a federally regulated bank holding company containing a federally insured bank, it was already subject to the full range of supervisory authorities. It had not one but several federal banking agencies already overseeing its activities.

The numbers were staggering, but not unprecedented. Government assistance has been par for the course at Citi throughout its existence. The federal government invested $49 million to buy preferred stock in 1933 to help save the bank at the height of the Great Depression, and came to their rescue in the 1980s with complicated aid packages and debt restructuring for less developed countries that helped repay the massive amount of loans Citi had made in the developing world—perhaps ironically in an attempt to take advantage of markets that weren't as heavily regulated as the United States. Other banks benefitted from government assistance in both eras, but Citi led the way in both taking on the risk, and taking the government handout when they got in trouble.

Citigroup has, in fact, relied on the government from its inception. "It was," the authors explain, "quite literally a creation of government." 

The bank's creation was intensely political as rival factions in the New York State assembly—each aligned with factions in the federal government—competed in a lobbying battle for a state charter. Legislators eventually struck a compromise whereby a faction affiliated with President James Madison and the rival group affiliated with Vice President George Clinton each secured a number of board seats in the new enterprise.

(I'd like to be able to write that it was all funkadelic from there, One Nation Under a Groove, but that was a different George Clinton.) 

Borrowed Time is not simply a history of Citi, but of America's banking system more broadly—really an economic and financial history of the United States as seen through its most systemic institutions, with brief histories of the War of 1812, the Panics of 1837 and 1907, the crash of 1929 and the Great Depression that followed, banking regulation regimes that followed, and global intrigue from Cuba's sugar fields to the streets of St. Petersburg. In fact, there are over 250 fascinating pages of financial history before the authors make their way to the disasters of a decade ago. Along the way, you'll meet an intriguing cast of characters that led the bank and the entities responsible for regulating it. (The 45th president even makes an appearance as a major client of the bank during his "1980s borrowing binge," though he ended up in a position similar to that of the Mexican government with regards to the bank during those years—i.e. unable to repay the loans.)

In the end, what we see is not a bank too big to fail, but so big that it is almost bound to fail—repeatedly—at things as fundamental as being able to produce a proper checking account statement for major clients due to the mess in its back office, to "deficiencies in Board and management oversight … magnified by the institution's inadequate information technology infrastructure." That last quote comes from former FDIC chair Sheila Bair's book Bull by the Horns. Bair is one of the few regulators in the book that comes out looking good in the end. "If you wanted to make a definitive list of all the bad practices that led to the crisis," she writes, "all you had to do was look at Citi's financial strategies." It wasn't the first crisis you could say that of.

"If Citi isn't systemic," Treasury Secretary Hank Paulson declared, "I don't know what is." That is undoubtedly true, but so is racism in America, and so many of society's other ills. I believe finance, like politics, is the art of the possible. I believe in the vision Robert Shiller set out in Finance and the Good Society for reclaiming finance for the common good, that financial innovation has advanced human goals and agency throughout history and can still be a force of good in society. After reading Borrowed Time, I wonder if Citibank can contribute to that reclamation, or if it only stands in its way. 

We have 20 copies available.