I’m reading the long New York Times piece on Citbank’s demise. Deep into it there’s this paragraph:

<<To make matters worse, Citigroup’s risk models never accounted for the possibility of a national housing downturn, this person said, and the prospect that millions of homeowners could default on their mortgages. Such a downturn did come, of course, with disastrous consequences for Citigroup and its rivals on Wall Street.>>

And then this one:

<<In fact, when examiners from the Securities and Exchange Commission began scrutinizing Citigroup’s subprime mortgage holdings after Bear Stearns’s problems surfaced, the bank told them that the probability of those mortgages defaulting was so tiny that they excluded them from their risk analysis, according to a person briefed on the discussion who would speak only without being named.>>

Maybe someone can explain this to me. I don’t know personally anyone who makes a financial decision without considering the possibility that the markets could shift direction. But if you’re entrusted with managing tens of billions of other people’s money, and are paid, I don’t know, five or ten or, in the case of Thomas Maheras, $30 million a year to do so, you don’t consider that possibility? It genuinely baffles me.

Knowing much better the milieu they come from, I think I understand how Doug Feith and Paul Wolfowitz could make the mistakes they made. But this makes little sense.

I do wish there would be some “accountability” though, some serious jail sentences.  Since I read that Citigroup board member Robert Rubin –a key formulator of the bank’s “strategy” –is considered one of Barack Obama’s top economic advisors, I’m not too optimistic.