Herb Allison

What a day it turned out to be in Congress today. Bankers everywhere. Treasury Department officials causing chaos. Congressmen and women apoplectic and avoiding responsibility. Aaah, good times.

First: Vikram Pandit, the deservedly beleaguered CEO of Citibank, went to Congress and gave heartfelt thanks for all the support his failed organization received during its self-inflicted melt down. He thereupon offered positive opinions on consumer regulation, which makes him my hero for a minute or two, but probably cost him major support amongst his CEO club buddies. None of the rest are exactly shouting out for consumer regulation. On the contrary, they have all mobilized their formidable and well oiled corruption lobbying machines to work against anything remotely pro-consumer. Good old Pandit, though, came out with some nice words for the plebes that saved him and the others: he told a probably confused Congress that what’s good for the consumer is good for banking. This is not the message we get from the folks at Goldman whose attitude is that the plebes exist only to provide life support in the event that traders screw up, and to shine their shoes, and wait their tables, during the interim. Pandit will surely be assassinated by a rogue trader in the near future.

Of course he shouldn’t still be running Citi, his failure is so manifest that even his moribund board of directors had to see it, but since Rubin is an exemplar of that board no one can be surprised that Pandit survived.

Second: It was Rubin who, yesterday, defended his de-regulatory spell in the Clinton administration by presenting the ‘Greenspan defense’: no one could have seen the implosion coming. No one that is in Washington, or the corridors of the big banks. Plenty of folks saw it coming, but they were treated as apostates. To argue deregulation was a bad thing in the Reagan/Bush era was to commit career suicide. Worse, anyone who thought bankers were an unstable and anti-social crowd, was condemned to exile from the elite circles. The very thought was to suggest that the gravy train of growth would end, not through the greed of workers getting out of hand – oh those bad unions will ruin it for us all! – but through the greed of the elite itself getting out of hand. It was to suggest that the elite was dumb and self-regarding. Heavens forfend!

Back to Pandit: he did tell us that Cit is now smaller and more capitalized than before, so that’s good news. But, unfortunately, it remains way too big and is already back to its rotten toxic creating ways. If he had told us he was quitting and that the bank had shrunk itself by half, I would have cheered him. As it is he still represents the face of failure.

It is extraordinary that after all the losses and failures of Wall Street few, if any, of the main characters who destroyed the economy, have been axed. Talk about a failure of governance.

Third: Which brings me to Herb Allison. He is an assistant secretary in the Treasury and makes frequent statements on the state of TARP and other bank related topics. He is an old time Wall Street executive from the go-go era of Merrill Lynch.

Today he stuck his foot so far down his throat his survival is questionable. Which is odd since he sticks to the script and is a wily kind of guy.

He was asked by various members of Congress about the Citi situation, and specifically whether the Administration had believed the bank was failing back when it was bailed out. Allison shuffled around and refused to answer any specifics. That is to say he wanted us all to forget what was flamingly obvious at the time: Citi was firmly nailed to its proverbial perch and propped up by us supportive taxpayers. It was to paraphrase the immortal words of John Cleese a dead bank. Thoroughly dead, if that’s possible.

Allison’s odd sort-of-denial of Citi’s bankruptcy was presumably to avoid damning Pandit while he was still loitering in the hallways outside. I suppose it is forgivable that one club member avoids slamming another in public. Besides the Treasury Department probably wants to elide the topic of nationalization and those rigged ‘stress tests’. And it definitely doesn’t want to get into why it failed to clean house even when it owned a big chunk of Citi’s stock. So Herb was covering not just Vikram’s butt, he was also covering Geithner’s and Summers’ too. In fact he was trying to draw a veil over both the Bush and Obama administration’s various efforts to avoid getting tough with their banker donors.

But real shocker was what Allison came out and said next. It is a stunner: he told Congress that there is no too big to fail guarantee for the big banks in America. None. Never was either.

Say what?

Earth to Herb … every single other Treasury person says there is. We just spent billions bailing them out. We have just spent an inordinate amount of time debating what form the guarantee should take. Everyone in the stock market, the credit market, and any other market assumes that there is such a guarantee. Stock prices and interest rates reflect the assumption of that guarantee. In fact the entire freaking and fragile recovery is built on that very guarantee. If there is no too big to fail guarantee, what was TARP – the program you babysit – all about?

What the f**k, Herb?

Talk about being able to hear a pin drop.

Was this a massive new policy thrust?

Was the administration playing hard ball with the limp-wristed reformists in Congress? Are we entering yet another phase of deregulation? Was TARP an illusion? Did the bank crisis never happen? Are we re-writing history this soon?

The problem is that, as I said, Herb sticks to his notes. So it seems clear that someone in Treasury wanted to lay a bomb today. If so they succeeded. Confusion abounds. The stock market needs to digest this one. Watch for some fall out. And watch for Herb to decide to spend some time with his family.

I can’t wait to see how Geithner spins this one.