Panel grills former Citigroup executives for failing to recognize financial crisis

Panelists examining the financial crisis on Thursday sharply criticized former Citigroup executives for failing to recognize the looming financial crisis that created a stock market freefall and nearly brought down the U.S. economy.

Former Treasury Secretary and Citigroup Chairman Robert Rubin, and former Citigroup CEO Chuck Prince, appeared before the Financial Crisis Inquiry Commission, a congressionally appointed group charged with examining what caused the financial meltdown.

{mosads}The former executives repeatedly told the panel that events leading up to the meltdown were unforeseen by them, but they still apologized for the outcome.

Panel vice chairman Bill Thomas (R-Calif.), a former Ways and Means chairman, was especially incensed by their response and strongly suggested that both men be held financially responsible for their role in the meltdown.

“To make the argument that somehow a simple apology still allows you to maintain a profile of income based upon what has devastated everyone else doesn’t [pass] the scale [of justice] test — no matter how often you feel really, really sad about what happened,” Thomas said.

Thomas repeatedly mentioned the term “claw back” during the hearing, which describes money earned on soured investments being refunded.

Rubin and Prince worked at Citigroup during the financial crisis and said they were unaware of any market disruption until September 2007, even though panelists said reports predicting a bust were available as early as 2004.

“I’m particularly struck by how much the two of you did not know what was going on within your organization,” said panel vice chairman Phil Angelides. “At the end of the day, you were the head guys.”

Rubin discounted the reports because economic modeling used by the bank showed that assets of the verge of becoming toxic would eventually rebound. He also said it was easier to spot an economic crisis in hindsight.

“It is very, very difficult after the fact to say what was responsible,” he said.

One model used by the bank showed a 1-in-10,000 chance of the investments turning toxic.

“In hindsight, there were obviously real problems, Rubin said.

In the wake of the crisis, Citigroup lost more money than any other company in history. Its stock dropped from approximately $50 a share to about $1. It received a $45 billion federal bailout in exchange for giving shares to the government.

Treasury is currently planning to sell its 7.7 billion shares in the bank.

Prince deemed himself a victim of the financial crisis since his net worth had “disappeared” because of his Citigroup holdings. He said he held on to stock obtained over a 30-year career that had seen its value collapse with the financial meltdown.

Prince also told the panel that regulators should not be blamed for the crisis since they were as much in the dark about it as he and Rubin.

“I think the mistake that was made by everyone about the value of these instruments was fundamentally also made by the regulators,” he said, adding, “I don’t think it was a failure of regulatory involvement at the company.”

Rubin blamed the meltdown on a number of factors, from excessive assumption of risk by investors to abnormally low interest rates that spurred a buying frenzy in the housing market.