Sunday, December 05, 2004

The Citi Never Sleeps...
My old employer, Citigroup, has been back in the news as of late. The latest lawsuit (you almost never hear anything positive about Citi, only about the lawsuits) arises from investors peeved about the actions of Jack Grubman (con-man extraordinaire) and his use of the ratings system to prop up AT&T , then run by a Citigroup board member, Michael Armstrong. The suit alleges that Grubman purposely gave AT&T a higher-then-deserved rating in order to allow Citi to obtain a lucrative contract with AT&T. In return, Grubman got the help of Citigroup CEO Sandy Weill in getting Grubman's kids into a ritzy pre-school program. Investors got stuck with stock, held or bought on Citi's recommendation, that was hardly worth the paper it was printed on.

My own personal thoughts on what passes for responsible management at Citi have been somewhat well documented here. I believe it to be a den of thieves, and when I hear something like this (I had heard about it three or four years ago), I'm not terribly surprised. This is par for the course; the old-boy network once again taking care of each other, with money and favors changing hands. The old nod-and-a-handshake method of business has never actually gone away, and probably never will.

I've gotten a few missives, queries and questions from various places about what I know went on at Citi, or more specifically, at it's Salomon, Smith-Barney subsidiary, where I was employed as a system's programmer, back in the day. I cannot tell anyone what actually happened in the boardroom, in the excutive dining room or in the executive suites. That was not my territory. I can only talk about what had filtered down to my area vis-a-vis management practices and the perceptions those practices created amongst the rank and file.

I never liked what was going on. Still, I held my nose and soldiered on for 11 years --- I had a job to do, and bills to pay, just like anyone else, and I was doing okay, despite the stress and the sick feelings I got everytime I walked through the front door at 390 Greenwich Street. Agita, like the three martini breakfast and the fully-staffed, on-site cardiac unit, is a staple of life on Wall Street.

So is greed. So is the stupidity engendered by greed. The short-sightedness that elevates the making of a dollar to the top of the list and the application of etics and common sense to the bottom of the trash heap. I've seen the greed and stupidity first hand, and after a while, the lines between where one starts and the other ends becomes awfully blurred. But it amazes me, to this day, how people with expensive educations from the finest Ivy League business schools can continue to be so incredibly stupid.

Jack Grubman was not poor. Jack Grubman could have afforded to send his children to any damn pre-school in the world, but he HAD to have the one at the 92nd Street Y. It wasn't just a better pre-school program, it was a status symbol. If the suckers had to be fleeced in order for that to happen, and the firm benefitted from some extra business at the same time, then so be it.

You see a lot of this on Wall Street.

I spent 18 years of my life in the financial industry, never on the trading floor, always in the system's areas, but you can't help but see this kind of thing happening all the time. In the end, the stupidity always revolves around three bsaic tenets:

1. Acquisition.
2. Status.
3. Arrogance.

Acquisition in the go-go 80's revolved around who could rake in the most money for the firm. Who had the better house or car, and who belonged to what clubs. It still does. One only need look at Dennis Kozlowski and Ken Lay, with the gazillion homes in Vail, the $18,000 umbrella stands and the art collects to see it. Back then, these guys would have actually done something productive in order to enjoy these perks. Nowadays, they just borrow the money from the firm, with no intention of ever paying it back, and leaving the investors on the hook for it. Acquisition in the 90's went far beyond the worst excesses of the 80's, in my opinion. Having the mansions, the yachts, the Bentleys and the memberships was no longer enough -- now they had to acquire even more mundane things, like the right pre-school, provided the proper patina of status was attached to it as well.

Status has always been a problem. You will find very few brokers on the street that don't have a "drop your pants and grab your yardstick" mentality. The big earners always got the better perks, and in the age of mass media, the better press. Your status nowadays revolves around how many magazine covers and Wall Street Journal profiles you happen to be seen or mentioned in. No one labors anonymously anymore, except the cubicle slaves who actually make it all possible. Still, the title of Lord of the Jungle not only revolves around how much you've acquired, but how much face time you get on television. About the only thing better than a multi-million dollar bonus was five good minutes in front of Maria Bartolomo, Stuart Varney or Neil Cavuto. If i had to guess, this need for exposure as well as riches reinforces an impression of the high rollers that I had formed very early on in my career: these guys probably all have small penises and have been compensating for it with wealth. Money, as they say, is a wonderful aphrodesiac.

As for arrogance, you couldn't be a market mover without it. You have to have a killer mentality and a swagger if you hope to get anywhere. Very often, that smugness, that swagger, that overconfidence, is vital to success. No one wants to do business with someone who hedges, who covers his behind or who second-guesses himself, even when he's dead wrong. These guys would rather go down in flames than to admit to making a mistake. Mistakes are for other people -- other people get blamed for them, other people are held responsible for them and ultimately, other people get fired for them. I can't tell you how many of these guys I've seen in my day who actually believe that if they yell enough, become intimidating enough, then nothing becomes impossible. I saw so much of it on September 11th, 2001 that it made me want to leave the industry for good. Nothing like watching the CIO of the compnay you work for pound a table demanding things that now lay at the bottom of a smoking pile of rubble, because he said so, and despite all logic indicating it can never be done. They become so arrogant that bringing the dead back to life becomes merely a matter of thundering and sending the peasants into a frenzy of activity.

At the end of the day, it's not Citi that does these things or is stocked to the brim with this kind of character. Every firm has them, regardless of the business they're in, and not all of them get caught. But occasionally, one does, and when that happens, the rest of the firm is caught due to the increased scrutiny the original sin brings. It's when the full force of daylight is brought to bear on the happenings of once-closed boardrooms that we begin to see just what fools these folks are. They have everything, and it's never enough. They have the power to affect the world's financial and political systems, and it's still not enough. The egos expand until they fill the four corners of the universe, and then they demand a bigger universe.

The probelm with the Jack Grubmans of this world is that, eventually, their egos become so inflated that they believe they will never get caught. Grubman got caught because he couldn't stop bragging about getting his kids into that school (it was an internal e-mail, for the love of Pete!), and that he was sufficiently in control of the company apparatus that he could manipulate all he wanted from the writing, issuing and filing of the reports, right down to side-stepping the compliance and legal departments, and that he could then use his knowledge of where the bodies were buried to protect his own behind. He forgot about the investors, many of whom would have lost enough money to notice, and who would begin to ask questions. He forgot about the press, whch back then was his friend, but which changes stripes as soon as blood hits the water. He did very well, for a while, escaping with a $32 million "severance package". That escape is merely momentary, apparently.

Want to know how this is all going to end?

Jack Grubman will be convicted of something, pay the requiste fines, avoid jail and become a "silent consultant" someplace else, raking in big bucks. Sandy Weill will retire (rumored to be coming for at least 10 years now), pay is fines and go back to counting his wealth and putting his names on hospital wings in New York City. No one will do any jail time since the lawyers will tiee this one up for years and since, nod and a wink, it wasn't like we were Enron, was it? Well, yes, you were Enron, in the sense that you did something wrong. Incidentally, if I recall, Citi was up to it's collective backside in Enron, too. Grubman also had a lot to do with the Global Crossing fiasco as well. The "system" will correct itself, displaying to all the world that they have truly learned their lesson, and when no one is watching them anymore, go right back to doing what they were doing anyway. It's always been done this way and it will never change.

If you want my advice on what to do with your money, you're asking the wrong person. However, if you want some advice on what the truth is about Wall Street and the scum that works on it, I can tell you the following:

- A stockbroker is a licenced bookie in a suit.
- You'll bever get "in on the ground floor" of anything. By the time the small potatoe investors get calls from their brokers, the firm has already made it's money, the broker made his, and now they're pumping up prices on your dime, so thatthey can make more later.
- Anything in which you still pay, win or lose, is something that requires your full attention. You paid for expert advice and if you want to take it, you should have enough common sense to follow up on it. Hold them accountable, hold them responsible, but for God's sake, don't absolve yourself of responsibility. Yo made the final decision and if you lost, that's your tough luck, or rather, your stupidity for going solely on trust and their say-so. There is no longer nay trust on Wall Street and a smart investor does his own homework.
- Very few, if any, of the brokers you might deal with is an honest individual. He has something to sell you, and he will always put the best eyeshadow on the worst pig and present it to you as the Prom Queen. At the end of the day, a stockbroker is a private firm, Me-Myself-and-I, Inc, and his well-being depends on you, or rather, on taking your money. Ethics on Wall Street went out the window a long time ago. Expect to be ripped off, frequently, and take action to minimize those losses if possible.

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