The nation’s subprime crisis will be in the news from Wednesday to Friday this week as the federal government’s Financial Crisis Inquiry Commission begins a new round of hearings. The role of Citigroup will be a major focus of the inquiry.

Citigroup was a principal initiator and principal mortgage lender, including subprime loans, through its “Live Richly” campaign in the 1990s.

Alan Greenspan, former head of the Federal Reserve, began testifying this morning, April 7. Greenspan has been sharply criticized for pursuing policies that gave rise to the financial catastrophe of 2007 and 2008.

Some have alleged that Mr. Greenspan ignored repeated warnings. Writing in the New York Times, Michael J. Burry, a former hedge fund owner and manager said he had raised red flags about the possibility of catastrophe to the Federal Reserve chief and others. “Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy.”

Burry argues that not only did Greenspan ignore signs of danger to which he had been alerted, but forcefully promoted policies that caused the peril itself: “In February 2004, a few months before the Fed formally ended a remarkable streak of interest-rate cuts, Mr. Greenspan told Americans that they would be missing out if they failed to take advantage of cost-saving adjustable-rate mortgages.”

In his testimony, Greenspan says he was correct 70 percent of the time. 

Today, the  panel will also hear “testimony on subprime lending and risk management at Citigroup. Former risk management executives are expected to say they sounded alarms about the growing danger of Citi’s mortgage lending and finance activities but were ignored by senior management,” writes AP.

One such testimony  will be from  former Citi banker Robert Bowen who said he “objected repeatedly to the company’s approval of billions of dollars worth of mortgages that failed to meet various underwriting criteria,” writes the Wall Street Journal.”

The Journal continues “In November 2007, he sent an email to Citi executives including former Treasury Secretary Robert Rubin.” In it he warned of “breakdowns of internal controls and resulting significant but possibly unrecognized financial losses existing within our organization.”

The commission will also hear from former Citi CEO Chuck Prince and former Chairman Robert Rubin. Rubin was Treasury secretary during the Clinton years and worked closed with President Obama’s economic advisor, Larry Summers, and current Treasury Secretary Timothy F. Geithner. Their testimony will occur on Thursday.

African Americans, Latinos and senior citizens are among the chief victims of predatory lending practices.



Joe Sims
Joe Sims

Joe Sims is co-chair of the Communist Party USA. He is also a senior editor of People's World and loves biking.