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

by James Freeman, Vern McKinley

Overview

The disturbing, untold story of one of the largest financial institutions in the world, Citigroup—one of the " too big to fail" banks—from its founding in 1812 to its role in the 2008 financial crisis, and the many disasters in between.

During the 2008 financial crisis, Citi was presented as the victim of events beyond its control—the larger financial panic, unforeseen economic disruptions, and a perfect storm of credit expansion, private greed, and public incompetence. To save the economy and keep the bank afloat, the government provided huge infusions of cash through multiple bailouts that frustrated and angered the American public.

But, as financial experts James Freeman and Vern McKinley reveal, the 2008 crisis was just one of many disasters Citi has experienced since its founding more than two hundred years ago. In Borrowed Time, they reveal Citi’s history of instability and government support. It’s not a story that either Citi or Washington wants told.

From its founding in 1812 and through much of its history the bank has been tied to the federal government—a relationship that has benefited both. Many of its initial stockholders had owned stock in the Bank of the United States, and its first president, Samuel Osgood, had been a member of the Continental Congress and America’s first Postmaster General. From its earliest years, Citi took massive risks that led to crisis. But thanks to private investors, including John Jacob Astor, they survived throughout the nineteenth century.

In the twentieth century, Senator Carter Glass blamed Citi CEO "Sunshine Charlie" Mitchell for the 1929 stock market crash, and the bank was actually in violation of the senator’s signature achievement, the Glass-Steagall law, in the late 1990s until then U.S. Treasury Secretary Robert Rubin engineered the law’s repeal. Rubin later became the chairman of the executive committee of Citigroup, helping to oversee the bank as it ramped up its increasing mortgage risks before the 2008 crash.

The scale of the financial panic of 2008 was not, as the media and experts claim, unprecedented. As Borrowed Time shows, disasters have been relatively frequent during the century of government-protected banking—especially at Citi.

Product Details

ISBN-13:	9780062669889
Publisher:	HarperCollins
Publication date:	08/07/2018
Sold by:	HARPERCOLLINS
Format:	eBook
Pages:	384
Sales rank:	1,006,940
File size:	1 MB

About the Author

James Freeman has been the Wall Street Journal’s principal writer of unsigned editorials on Wall Street banking and regulation since the crisis of 2008. Under his own byline, he has published extended interviews with many of the most consequential people in finance, from the founder of the world’s largest hedge fund to the lead software developer of the Bitcoin project. He is a Fox News contributor and frequently appears on the Fox Business Network. He has also appeared on CNN, CNBC and MSNBC.

Vern McKinley’s clients include the U.S. Treasury, International Monetary Fund, and KfW (German Development Bank). He has advised governments in over 30 countries, many of which were experiencing financial crises at the time. Prior to his consulting career he worked for the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Resolution Trust Corporation and the Department of the Treasury’s Office of Thrift Supervision. His career started with the FDIC in the midst of the banking crisis in Texas during the 1980s. McKinley is credited with correctly predicting in 1997 that the structure of Fannie Mae and Freddie Mac would one day lead to the meltdown of the two institutions. All opinions are his own.

Table of Contents

Introduction vii

1 A Bank for the Treasury Secretary 1

2 When Failure Was Allowed (Because Government Wasn't Big Enough to Help) 10

3 City of Instability 22

4 Astor to the Rescue 32

5 Taylor's Bank in an Age of Panics 44

6 The Rockefeller Bank 58

7 A Political "Big Shot" 71

8 A City Banker Helps Create the Fed 85

9 "Our Friendly Monster" Goes Global 95

10 "Sunshine Charlie" Doubles Down on Sugar 107

11 Mitchell and the Mania 121

12 Did City Bank Cause the Crash? 144

13 Bank for the United States 171

14 Walter Wriston and the Culture of Risk 180

15 Not That Big, but Too Big to Fail? 193

16 When Countries Fail 207

17 The Banker Who "Never Made a Loan" 221

18 Just Another Perfect Storm 233

19 Creating the Next Crisis 252

20 The Man Who Knew Too Little 274

21 "Save Citigroup At All Costs" 287

Epilogue 307

Acknowledgments 309

Notes 313

Index 353

Editorial Reviews

06/25/2018
There’s a lot more to the story of the bank that was “too big to fail” than the 2008 crisis—and it doesn’t look good, insist Freeman, assistant editor of the Wall Street Journal editorial page, and McKinley, an attorney. Citigroup, the beneficiary of a “bailout culture” formed by an unhealthy relationship between Wall Street and Washington, secured aid by portraying itself as a helpless victim. The company’s long history, however, tells a different story: of a giant that has frequently floundered, yet has not just survived but, thanks to government intervention, profited off financial panics. The authors relate the long, fraught history of Citigroup since its early-19th-century origins, describing its incompetent early management, its pre-Depression CEO “Sunshine Charlie” Mitchell (who blithely found “no cause for alarm” regarding the stock market in 1928), and bailout-era CEO Vikram Pandit, who pleaded with federal officials, “Don’t give up on us.” Citi received $45 billion from the U.S. government, the most of any bank, but, Freeman and McKinley assert, its claim of being subject to circumstances beyond its control should have been received far more skeptically. This is the first book to focus on Citigroup’s handling of the 2008 financial crisis, and readers looking for new insight on the Great Recession will find much here. (Aug.)

Publishers Weekly

This book convincingly shows—through fascinating investigative reporting of 200 years of history—how  connections between government and Citi grew closer over time and became the ultimate cause of bailouts, detested by so many Americans, and even of the market conditions that led to the financial crisis.” — John Taylor, Mary and Robert Raymond Professor of Economics, Stanford University

“At the next banking crisis, Citi likely will be there, once again. Borrowed Time explains why.” — Bartly Dzivi, Special Counsel, Financial Crisis Inquiry Commission

“If you think the 200-year history of an American bank sounds dry, think again. Borrowed Time is a highly entertaining and informative run through a long list of the crises faced by Citibank.” — The Financial Times

From the Publisher

If you think the 200-year history of an American bank sounds dry, think again. Borrowed Time is a highly entertaining and informative run through a long list of the crises faced by Citibank.

The Financial Times

At the next banking crisis, Citi likely will be there, once again. Borrowed Time explains why.

Bartly Dzivi

This book convincingly shows—through fascinating investigative reporting of 200 years of history—how  connections between government and Citi grew closer over time and became the ultimate cause of bailouts, detested by so many Americans, and even of the market conditions that led to the financial crisis.

John Taylor

This engagingly written book stands Wall Street conventional wisdom on its head. Rather than accepting the view that banks are inherently in need of regular government control and bailouts, the authors use a deep dive into the history of Citibank to argue the opposite. When Citi was managed under the discipline of market competition, before its behavior was distorted by government protection and control, it withstood severe macroeconomic shocks, and was a source of assistance for other banks and the government. With a series of examples tracing the highs and lows of risk management over two centuries, the authors show that Citi’s risk choices (including deciding who ran the bank) were often heavily and unfavorably influenced by government control and support.

Charles Calomiris

2018-06-18
A relentless exposé of the 200-year-old banking enterprise.During the early decades of the United States, after the colonies broke away from the British, the Founding Fathers engaged in lengthy, heated debates about the wisdom of creating a central bank under the aegis of the government. One of the entities that eventually emerged from these debates was what we call Citibank or Citigroup. Freeman, assistant editor of the Wall Street Journal's editorial page, who used to be investor advocate at the Securities and Exchange Commission, and McKinley, a consultant and attorney, maintain that despite its facade of solidity for two centuries, the bank has experienced repeated massive failures only to be rescued each time by wealthy private investors and/or the federal government. Before the phrase "too big to fail" became all-too-familiar in the 2000s, it described a widespread perception within the circles of the wealthy during the 19th and 20th centuries. Moving the story along, the authors salt the narrative with colorful characters who have controlled the institution from top to bottom—e.g., Moses Taylor during the Civil War era, Frank Vanderlip before and during World War I, Charles Mitchell during the Great Depression, Walter Wriston (1967-1984), and a cast of miscreants who contributed to the 2008 financial crash. Throughout the book, the authors also profile members of Congress, Federal Reserve Bank governors, and others outside Citi. Unfortunately for millions of investors, even the smart, well-intentioned regulators turned out to be ineffectual at ameliorating the widespread chaos caused by Citi and similar financial institutions. The boom-and-bust cycles chronicled by Freeman and McKinley accumulate in chapter after chapter until it seems that Citi executives and government regulators were little more than a procession of villains. Readers may feel hard-pressed to identify even one hero in the book.An exposé that might lead readers to stash their savings under a mattress.

Kirkus Reviews