Chuck Prince succeeded Sandy Weil (#48) as CEO of Citigroup in 2003 and was forced to resign this position in November 2007 in the wake of Citi announcing enormous losses in its mortgage portfolio. Prince’s first job out of law school was with U.S Steel, and Prince never really seemed to be comfortable with the wheeler-dealer culture on Wall Street. Perhaps the best example of how out of touch Prince was with the way Wall Street worked is provided by Treasury Secretary and former Goldman Sachs CEO, Henry Paulson (#38).
In his post-crisis memoir, On the Brink, Paulson recalls a dinner he attended at the Federal Reserve Bank of New York on June 26, 2007. Among the attendees were Jamie Dimon (CEO, J.P. Morgan), Lloyd Blankfein (#4), Jimmy Cayne (#10), Steve Schwartzman (CEO, Blackstone) and Chuck Prince, (CEO, Citigroup). At this dinner, Prince went up to Paulson and essentially asked him whether there was anything Paulson could do as Treasury Secretary to keep banks like Citigroup from taking such large risks. It would appear that because he had not spent his entire career on Wall Street, Prince had an inkling that what passed for business as usual on Wall Street was actually fraught with enormous risks.
More famously, and after apparently taking several belts of the Wall Street Kool-Aid - in July of 2007 Prince stated in an interview with the Financial Times that Citigroup’s approach to risk management was, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In testimony in front of the congressional panel investigating the cause of the financial crisis Prince stated that the Financial Times quote had nothing to do with mortgages or the US housing market. Rather the quote was concerned with “leveraged loans” or loans to private equity firms and bridge loans to finance leverage buyouts. Prince testified that he essentially felt compelled to make these risky loans because if he didn’t another bank would,
“It was not credible for one institution to back away from this leveraged lending business…The regulators had an interest in tightening up lending standards.”
It was these “leveraged loans,” not mortgages, Prince was discussing with Paulson when he asked if there was something the Treasury could do to keep banks like his from taking too much risk.
Nevertheless, the example of Chuck Prince, and his ultimate decision to take on enormous amounts of risk even when he had doubts, shows how the credit bubble mania swept through Wall Street. Up and down Wall Street the same thing was heard time and time again - if you don’t take these risks, someone else will. This wasn’t investing or anything that required a probing intellect. Instead, it was little more than an enormous game of “monkey see, monkey do.” Of all the arguments against the enormous salaries on Wall Street, the enormous losses emerging from the housing crisis is not even the strongest. Instead, the strongest argument against the huge Wall Street salaries is the group think that prevails on Wall Street and group think only takes mediocrities to perpetuate.
See Robert Rubin (#40) for more on Prince’s dilemma and how Rubin could earn over $100-million from Citigroup and claim he only had a “side role” with the company. See Sanford Weil (#48) for the Federal Reserve’s and the Clinton Administration’s fully fraudulent role that allowed Citigroup to be created in the first place.