By Pam Martens: June 22, 2012
On June 25 and June 26, 1998, the Federal Reserve held hearings at the Federal Reserve Bank of New York on allowing Travelers Group, which owned an insurance firm (Travelers), investment bank (Salomon Brothers) and brokerage firm (Smith Barney) to merge with a bank holding FDIC insured deposits (Citicorp/Citibank).
Despite solid testimony that this merger was illegal, the Fed approved the merger and Citigroup was born. Sandy Weill, head of Travelers, and Jamie Dimon, his first lieutenant (now Chairman and CEO of the risk-management-challenged JPMorgan Chase) were the brains behind the Travelers/Citicorp deal and made a fortune from it.
That merger forced all of Citigroup’s main competitors to do similar deals in order to compete, setting in motion today’s too big to fail financial chaos.
Why didn’t the Fed listen to the testimony? Why didn’t the Fed follow the law? Here’s a sampling of what the Fed heard on those fateful two days:
Matthew Lee: Inner City Press/Fair Finance Watch
“…we think [the merger application] should be dismissed based on improper communications that have taken place between Travelers, Citicorp and the Federal Reserve Board. Prior to the deal even being announced and the application being submitted, not only did the two CEOs of the two institutions meet with Chairman Greenspan, we found that, in fact, there was very detailed preapproval sought for particular practices…We think it is tainted.”
Mark Silverman: Citicorp-Travelers Watch — a coalition of community groups formed at that time to scrutinize the proposed merger
“…the merger is illegal. The affiliation between Citibank, as a member bank of the Federal Reserve Board and Travelers’ subsidiaries that are engaged principally in securities dealings is simply prohibited by the Glass-Steagall Act…If the Board approves this merger prior to any change in the law, Congress, pressured by Citigroup and concerned about the consequences of a forced divestiture, can enact one of the most embarrassingly blatant pieces of private-interest legislation in recent memory…the Board risks undermining the legitimacy of itself and the legislature..” [Of course, that legislation was passed, repealing the Glass-Steagall Act and known as the Gramm-Leach-Bliley Act.]
Hilary Botein: Associate Director of the Neighborhood Economic Development Advocacy Project (NEDAP)
“…a mockery of the regulatory process by allowing Citicorp and Travelers to brazenly violate existing law.”
Sarah Ludwig, Coordinator of the New York City Community Reinvestment Task Force
“… an affront to the public, and underscores that large and powerful corporations influence government decision making even to the point of obtaining approval on illegal transactions…Secondly, approving the application would constitute hideously unsound policy….”
