The Banality of Corporate Evil

Our culture worships spunky small businesses and entrepreneurship.  Stewart Parnell epitomized that ideal and was living the good life in Lynchburg, Virginia until last month, when his Peanut Corporation of America (PCA) was linked to one of the biggest salmonella outbreaks—at least eight deaths and more than 500 illnesses—ever to occur in the United States.

According to federal officials, PCA knowingly shipped contaminated peanuts as well as peanut butter and paste on numerous occasions, including 32 truckloads meant for the school lunch program. PCA also provided tainted raw materials for many large food processors, which have issued a cascade of product recalls. PCA is now the subject of a criminal investigation, and this week Parnell (photo) was compelled to appear at a Congressional hearing, where he grim-facedly invoked the Fifth Amendment and declined to answer questions.

He had reason to look grim. The House Energy and Commerce Committee released several e-mail messages sent by Parnell, including one in which he told his plant manager to make shipments (his exact words were “let’s turn them loose”) despite some test results showing evidence of salmonella. In another he complained that those problematic results were “costing us huge $$$$$.”

This was also a week when the chief executives of the country’s largest financial institutions were called before Congress and pelted with questions about bonuses paid out amid the massive federal bailout of the industry. But these days everyone expects executives of large corporations to be reprobates.

The Parnell situation is more chilling. He is the head of a privately held company with annual revenues of only about $25 million, which makes it a small business by contemporary standards. PCA had almost no public profile until last month, and Parnell’s only previous time in the national spotlight (though a much dimmer one) was in 2005, when Bush Administration Agriculture Secretary Mike Johanns appointed him to the Peanut Standards Board. (Parnell was just ousted from the panel by the USDA, which also announced that it is seeking to debar PCA from doing business with the federal government.)

According to the Atlanta Journal-Constitution, PCA was built by Parnell’s father, Hugh Parnell, as an outgrowth of his ice cream sandwich business. The company later got caught up in the takeover wave that swept through the small world of peanut processing. The Journal-Constitution reports that PCA was sold in 1995 to Morven Partners, the vehicle set up by billionaire investor John Kluge to take over various nut companies such as Jimbo’s Jumbos.

Jimbo’s, by the way, was mentioned in one of the e-mails released this week by the House. In it Parnell said: “We need to find out somehow what our competition (JIMBOS) is doing [about salmonella] and at the very least mimic their policy.”

Stewart Parnell and his brother Hugh Brian Parnell, the Journal-Constitution goes on to report, became management consultants for Morven until the late 1990s, when Stewart repurchased PCA.

Hugh Brian Parnell told reporters that work and family occupy his brother Stewart’s time. “He doesn’t drink, smoke or socialize,” Huge was quoted as saying. “He’s a family man. You never see him without a grandchild around.” The Associated Press quotes a neighbor of Stewart’s as saying: “He’s always been an upstanding, generous person and a pillar of the community.” Parnell and PCA didn’t have a much of a presence in the business community in Lynchburg, where the company has its modest headquarters. “This episode is the first time I’ve heard of them,” the president of the city’s chamber of commerce was quoted as saying.

Even less is known about Parnell’s associate David Royster III, who reportedly financed the acquisitions that allowed PCA to reach its current size. Royster is one of the younger members of a family that operates a variety of apparently respectable businesses in Shelby, North Carolina.

The apparent fact that supposed pillars of the community can engage in outrageously reckless business practices shows that there is sometimes a fine line between the aggressive pursuit of profit and behavior that can legitimately be called evil. Those who would venerate entrepreneurship should keep in mind that it can also have a dark side.

A Missed Opportunity

In three public appearances—town hall meetings in Indiana and Florida as well as a prime-time news conference—President Obama has achieved a rhetorical tour de force in promoting the economic recovery legislation now before Congress. His remarks have skillfully discredited the government-bashing and market fundamentalism that have dominated U.S. political discourse for the past quarter century.

One of Obama’s most effective points has been the need to turn the current crisis into an opportunity. He argues that proposed spending provisions relating, for instance, to school construction, renewable energy development, and the computerization of medical records will help both in boosting short-term economic activity and in providing the basis for longer-term improvements in education, energy independence and healthcare efficiency. Rarely has the case for public investment been made so passionately and so eloquently.

Would that the same could be said about the speech given by Treasury Secretary Timothy Geithner (photo) about the Administration’s plan for revamping the financial bailout. First, it felt odd for a cabinet officer to be introduced by a member of Congress—Senate Banking Committee Chairman Chris Dodd. Second, the speech was surprisingly vague on some key points, and Geithner did not take any questions.

The speech began with a recitation of the dismal features of the ongoing financial crisis, which he seemed to attribute more to loose monetary policies than to the predatory practices that saddled so many homeowners with unsustainable mortgages. Geithner spoke of failures in the regulatory system without mentioning that, until nominated for the Treasury post, he was part of that system as the head of the Federal Reserve Bank of New York. That awkward fact may explain why his criticism of the bailout policies pursued by his predecessor Henry Paulson was rather muted. “The actions your government took were absolutely essential,” Geithner insisted, “but they were inadequate.” A lot of adjectives come to mind about Paulson’s track record. “Inadequate” is hardly the most apposite.

When it came to the plan itself, Geithner seemed mainly concerned to give the appearance of dynamism, even resorting to quasi-military terminology in saying that Treasury and other agencies “will bring the full force of the United States Government to bear to strengthen our financial system.”

And what will this force seek to achieve? Geithner then switched to a medical metaphor to say that banks will be subjected to a “comprehensive stress test.” This seemed to mean a closer look at their balance sheets. But instead of suggesting any crackdown on institutions whose financial records reveal past shenanigans, Geithner suggested that those banks with more serious problems will be given access to a new “capital buffer” provided by Treasury. In other words, more bailout money for those institutions that screwed up the most.

The Treasury Secretary went on to describe a Public-Partnership Investment Fund that would “leverage private capital” to begin a process of relieving banks of the toxic assets that are now said to be the reason why credit is not flowing. Yet Geithner did not adequately explain why the financial markets would suddenly become enamored of assets that they are currently shunning.

A more straightforward portion of Geithner’s plan is the idea of injecting at least $500 billion and perhaps up to $1 trillion from the Federal Reserve to unfreeze the market for consumer and business borrowing. A big part of this market relates to credit cards, so the Administration seems to be suggesting that we try to ride out the recession by using more plastic.

Geithner left perhaps the most important feature of the plan—foreclosure assistance—for last and then said it was too soon to announce full details.

Apart from laudable provisions relating to transparency (including a new disclosure website), there is not much in the Geithner plan that represents a fundamental break from the Paulson approach to the crisis. According to the New York Times, Geithner resisted calls from other Administration officials to take a tougher approach toward the big banks. The result is a new plan that, aside from the restrictions on executive compensation, continues to coddle the large financial institutions that brought the country to its current precarious condition.

By putting its financial policy in the hands of a man who seems to have accepted the cowboy culture of Wall Street, the Obama Administration is wasting the opportunity to use the crisis to achieve fundamental change in the banking system. Instead, the new transparency measures may end up revealing that the Geithner plan is headed for the same dead end as that of his predecessor.

A Complete Break?

The contradictory impulses of the federal government were on full display today. At one location on Capitol Hill, a group of so-called Senate moderates were meeting to strip some $80 billion out of the Obama Administration’s economic recovery plan. According to press accounts, they were mainly targeting proposed spending related to education, ranging from Head Start programs to Pell grants for college students. I guess they are telling us that in these hard times we shouldn’t be lavishing taxpayer funds on fat cat students.

Meanwhile, in another part of Capitol Hill, the Senate Banking Committee heard testimony from Elizabeth Warren (photo), Chair of the Congressional Oversight Panel that was created by the Troubled Asset Relief Program (TARP) legislation enacted last fall. Warren gave a preview of her panel’s new report that will contain estimates that, in its purchases of capital stakes in major banks, the Bush Treasury Department overpaid by some $78 billion.

Want to take bets on which group—students or banks—end up keeping their $80 billion?

Warren’s statement was based on a valuation study of a sample of the banks that got federal infusions. “Despite the assurances of then-Secretary Paulson, who said that the transactions were at par,” Warren said, “Treasury paid substantially more for the assets purchased under the TARP than their then-current market value.”

Being generous, Warren said that Treasury may have overpaid as part of a deliberate policy to increase the amount of assistance being given to the banks to enhance the stabilization effort. As I see it, the overpayment could just as easily be seen as incompetence or a corrupt conveyance of value by Treasury officials to their friends in the financial community.

Warren was joined at the hearing by Neil Barofsky, the TARP Special Inspector General, whose testimony echoed her concern about the failure of Treasury to explain the criteria it applied in making its TARP payouts last year. Barofsky also expressed frustration about the refusal of the TARP recipients to reveal what they are doing with the funds. Yet he made it clear that the era of non-accountability is over. Barofsky said his office is moving ahead with plans to ask all recipients for an accounting, and in some cases—such as Bank of America—he is launching an audit of where the TARP money went. Even more tantalizing was Barofsky’s statement that his office has “opened several criminal investigations.”

Warren and Barofsky’s aggressive approach meshes with the Obama Administration’s stance on executive pay, which was announced in the wake of revelations that bailed out Wall Street firms had distributed a total of some $18 billion in end-of-the-year bonuses. It’s unfortunate that the plan does not apply to the many companies and their executives who already took the money (from taxpayers) and ran (to the bank to deposit their bonus checks). Yet, given the likelihood that many more corporations will be receiving federal help in the months to come, some top executives may finally have to endure some sacrifices.

What worries me, however, is that the Administration’s assault on executive pay may be an effort to placate the public in advance of the big new bailout plan that Treasury Secretary Timothy Geithner is expected to announce next week—a plan that could include the creation of a “bad bank” to allow financial institutions to unload their toxic assets onto the taxpayers. Cracking down on the compensation of bank executives feels good, but it will not relieve the pain of another ill-conceived giant bailout.

Given the state of the economy, more federal intervention may be inevitable. Yet Geithner will have to make it perfectly clear next week that the Obama Treasury Department has made a complete break with the irresponsible and opaque policies of the former Paulson regime.

Note: Transparency is an issue not only for the TARP program, but also for the economic recovery plan. The stimulus legislation includes provisions for federal disclosure of money flows, but a new coalition is also calling for greater transparency in the way the states will use those funds.

Green Jobs are Not Always Good Jobs

As the federal government prepares to spend billions of dollars promoting the creation of green jobs as part of the huge economy recovery bill, a new report warns that the jobs already being created in climate-friendly sectors of the economy do not always measure up in terms of wages and other terms of employment. The report, entitled High Road or Low Road: Job Quality in the New Green Economy, was produced by Good Jobs First (yours truly was the principal author). It was commissioned by the Change to Win labor federation, the Sierra Club, and the Teamsters and Laborers unions.

Many proponents of green development assume that the result will be good jobs. The report tested that assumption and found that it is not always valid. This is based on an examination of three sectors: manufacturing of components for wind and solar energy generation; green building; and recycling. In each sector, we found examples of employers that compensate their workers decently and treat them with respect. These include the Gamesa wind equipment manufacturing operations in Pennsylvania; developer Gerding Edlen’s commercial and residential construction projects centered in Portland, Oregon; and Norcal Waste Systems’ Recycle Central operation in San Francisco.

Yet we also found examples of purportedly green employers paying substandard wages and not treating their workers well. These include at least two wind energy manufacturing plants—one run by Clipper Windpower in Iowa and another run by DMI Industries in North Dakota—where workers initiated union organizing drives in response to issues such as poor safety conditions and then faced strong union-busting campaigns by management. Some U.S. wind and solar manufacturing firms are weakening the job security of their workers by opening parallel plants in foreign low-wage havens such as China, Mexico and Malaysia.

The report finds that many wind and solar manufacturing plants are receiving sizeable economic development subsidies from state and local governments. This use of taxpayer money provides an opportunity to raise wages and other working conditions. Many states and localities already apply job quality standards to companies receiving job subsidies or public contracts. In the report we urge wider and more aggressive use of such standards by federal as well as state and local agencies. The report offers other public policy options and urges the private U.S. Green Building Council to consider adding labor criteria to its widely used LEED standards for green construction.

The overall message is: green jobs are not automatically good jobs. We have to make them so.

Note: This item is crossposted on the Good Jobs First Clawback blog.

Banking Badly

The markets are abuzz with speculation that the Obama Treasury Department may use a scheme known as a “bad bank” as a new gambit in trying to resolve the widening financial crisis. Despite its name, the concept does not involve pillorying corrupt and reckless financial CEOs for their sins—as President Obama in effect did Thursday in expressing outrage over Wall Street bonuses. On the contrary, it is a way of absolving banks for their misguided lending and investment practices by having the government acquire their tainted assets and place them in a separate entity.

If this sounds familiar, it’s because it is essentially what former Treasury Secretary Henry Paulson insisted back in September was essential to the survival of capitalism. Yet after he steamrolled Congress into giving him authority to spend $700 billion on such purchases, he turned around and pursued an entirely different strategy of injecting massive amounts of capital into the banks. Since that approach failed to restore normalcy to the system, Paulson’s successor Timothy Geithner apparently wants to turn the clock back five months.

The mystique surrounding the bad bank idea comes from the fact that Sweden employed the technique to resolve a similar financial crisis 15 years ago. As the New York Times gushed recently: “With Sweden’s banks effectively bankrupt in the early 1990s, a center-right government pulled off a rapid recovery that led to taxpayers making money in the long run.”

Creating a bad bank is being depicted as an alternative to nationalization of major financial institutions. In fact, stock markets shot up on Wednesday after Geithner said the Administration would “do our best to preserve” the system of private ownership of banks.

What bad bank proponents tend to overlook is that the plan would probably involve nationalization as well. This is what happened in Sweden, where the government did not just relieve banks of non-performing loans and then leave them alone. Gota Bank, one of the weakest institutions, was nationalized and was compelled to merge with Nordbanken, which had been owned partly by the government but was then taken over completely (and privatized years later).

There are some other details about the Swedish experience worth noting. First, the government did not acquire the problem assets of all banks, though it did guarantee their obligations. The main bad banks were the ones spun off from Gota Bank and Nordbanken. Second, the troubled assets the government took over via entities called Securum and Retriva were mostly loans to commercial property owners and shares in industrial companies. Securum and Retriva took control of those properties, and when the commercial real estate market rebounded, they were able to sell off those holdings easily.

The financial world has gotten more complicated since the early 1990s. The toxic assets polluting the balance sheets of major U.S. financial institutions today are complex instruments such as mortgage-backed securities and collateralized debt obligations. These represent packages of large numbers of loans that cannot easily be disentangled. It is one thing to resell discrete office buildings and shopping malls but quite another to seize and resell thousands of bundled home mortgages. Does the federal government want to become a gargantuan version of those amoral people on late-night infomercials bragging about buying up and then reselling foreclosed homes?

Rather than wasting vast additional sums in a bad-bank bailout, why doesn’t the federal government direct its resources toward the creation of a “good” bank? The Federal Reserve is already acting not just as the lender of last resort to banks but has also provided loans to non-financial corporations by purchasing their commercial paper. Why stop there? If the for-profit banking system really is dysfunctional, then the solution may be to have the federal government step in to replace or supplement it in a major way. That’s the kind of intervention that may actually do us some good.

Merger of Miscreants

Monday may be remembered as the day when American big business announced some 50,000 layoffs, but one large company seemed to take a step toward growth. Pharmaceutical giant Pfizer unveiled plans that day to acquire its smaller competitor Wyeth in a stock and cash deal estimated at $68 billion. Pfizer crowed that the merger would create “the world’s premier biopharmaceutical company.”

While the deal may grow Pfizer’s revenues, it’s unclear who will benefit. The combined workforce of the two companies will be slashed by nearly 20,000 jobs. This will continue a policy of downsizing pursued by Pfizer CEO Jeffrey Kindler (photo) since he came to the giant drug firm from McDonald’s, of all places, in 2006.

Although Pfizer claims that the merged company will be better positioned to “respond more quickly and effectively to meet changing health care needs,” it is doubtful that patients will gain much from the creation of the mega-corporation. Pfizer has been feasting on the profits generated by Lipitor, but the company’s patent rights to the cholesterol drug expire in 2011 and there is nothing major in its pipeline to replace it. Even the Wall Street Journal editorial page sees the Wyeth acquisition as a sign of the “decline of innovation” in the drug industry.

Rather than developing new breakthrough products, companies like Pfizer seem mostly preoccupied with their legal issues. Kindler’s background, after all, is in litigation rather than science or even finance. Apart from patent issues, he has had to contend with the company’s regulatory problems. In fact, while everyone was focused on the merger, Pfizer announced that it had agreed to pay $2.3 billion (a record amount) to settle federal charges in connection with its off-label marketing of the now-withdrawn painkiller Bextra. The revelation was buried in a long press release announcing the company’s fourth-quarter financial results.

Bextra is not Pfizer’s only controversy. In October, for example, the New York Times published a story alleging that the company had manipulated the publication of scientific research to bolster the use of its epilepsy treatment Neurtonin for other disorders while suppressing research that didn’t support those uses. In 2006 the company was accused of testing an unapproved drug on children in Nigeria.

Pfizer’s bride-to-be Wyeth (formerly known as American Home Products) also has a record that is far from unblemished. The summary of legal proceedings in the company’s last annual financial report goes on for 14 pages. Most of the lawsuits are product liability cases involving hormone therapy, childhood vaccines, the anti-depressant Effexor, the contraceptive Norplant and, most importantly, the combination diet drug known as fen-phen, which was withdrawn from the market more than a decade ago after reports that its use was linked to possibly fatal heart valve damage. The findings unleashed a wave of tens of thousands of lawsuits against the company, including a case in Texas in which a jury awarded a single plaintiff more than $1 billion in damages. The company set up a $3.75 billion fund as part of the attempted resolution of a national class action case. Another $1.3 billion was added to the fund in 2006. Many plaintiffs opted out of the class and negotiated individual settlements with the company.

Big mergers are often justified with the claim that the combination will enhance product innovation. The main synergy likely to emerge from the marriage of Pfizer and Wyeth will be in its litigation department.

Is Change Coming to the Big Bailout?

In his confirmation hearing for the post of Treasury Secretary this week, Timothy Geithner spent a lot of time apologizing for his personal income tax peccadilloes. Perhaps he should have also expressed some contrition for his role, as head of the Federal Reserve Bank of New York, in the failure of financial oversight that helped plunge the country into its current economic crisis. Geithner also played a part, albeit one subordinate to former Treasury Secretary Henry Paulson, in the disastrous bailout program that was supposed to clean up the mess created by Wall Street.

In his opening statement to the Senate committee, Geithner declared that the Obama Administration intends to “fundamentally reform” the bailout scheme, still known as the Troubled Assets Relief Program (or TARP) even though the original plan for the federal government to buy up those assets was abandoned in favor of capital infusions. Since it now appears Geithner will be confirmed by the Senate next week, he will have to make good on that commitment to reform. And not a moment too soon. A string of recent revelations shows that the system is more flawed than we realized.

There’s growing evidence that Treasury may not have been as diligent and impartial as it claimed when deciding which banks would get TARP money and which would be denied. Earlier this month, Fortune wrote about the case of OneUnited, a small Boston bank that received $12 million in TARP funds even though its regulator, the Federal Deposit Insurance Corporation, had alleged it was operating without effective underwriting standards and practices. The bank was also making suspicious payments for a beachfront house and a Porsche SUV apparently used by its top executives. This week the Wall Street Journal reports that OneUnited’s TARP infusion came after Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, made a plea on behalf of the bank.

While some financial institutions may have used political connections to get on the TARP gravy train, others tried to game the system. For example, Financial Week recently reported that a number of large insurance companies have acquired tiny banks and converted themselves into bank holding companies, potentially making them eligible for big capital infusions from the Treasury Department.

One bright spot is the position being taken by the TARP special inspector general, Neil Barofsky (photo), whose confirmation moved slowly through Congress but who is now cranking up his operation. Barofsky has just indicated that he intends to ask every TARP recipient how the funds are being used.

What a novel idea. After hundreds of billions of taxpayer dollars have been shoveled into the private, someone in the federal government is finally asking what’s being done with the money. It remains to be seen whether Geithner, once in office, makes a clean break with the Paulson debacle and follows Barofsky in demanding real accountability.

Transparent Intentions

In some of its first official acts, the Obama Administration has set the hearts of disclosure advocates atwitter at the prospect of a new era of open government. “For a long time now there’s been too much secrecy in this city,” said the new President. “Transparency and rule of law will be the touchstones of this presidency.”

After issuing a memorandum on openness and an executive order repealing restrictive Bush Administration policies on the release of government records, including those relating to former presidents, Obama said: “Starting today, every agency and department should know that this administration stands on the side not of those who seek to withhold information, but those who seek to make it known.”

Transparency will be an issue in some of the administration’s largest initiatives, especially the $800 billion or so that will be spent for economy recovery. The signs there look promising as well. The 258-page text of the proposed American Recovery and Reinvestment Act of 2009 posted last week by the House Appropriations Committee includes some impressive provisions on disclosure. The bill calls for the creation of a special website called Recovery.gov “to foster greater accountability and transparency in the use of funds made available in this Act” (Section 1226).

Aside from general material on the stimulus program, the site is supposed to include detailed data on all contracts awarded and grants issued. However, the bill does state that “proprietary data that is required to be kept confidential under applicable Federal or State law or regulation shall be redacted before posting” (Section 201). Given the restrictive practices in some jurisdictions, this will require some watching.

Another provision of the legislation would create an Accountability and Transparency Board chaired by the President’s Chief Performance Officer (a new position created by Obama). The main aim of the board would be to “prevent waste, fraud and abuse,” but it would also be charged with overseeing practices regarding the reporting of contract and grant information. (Sections 1221-1225). Finally, the bill would require reporting on “the number of jobs created or sustained by the Federal funds…including information on job sectors and pay levels” (Section 12001).

If these provisions survive in the legislation that passes Congress, they will make the recovery act vastly more transparent than the bailout program carried out by former Treasury Secretary Henry Paulson in recent months. The need to bring some openness to the bailout was expressed by Timothy Geithner, Obama’s choice to succeed Paulson, during his confirmation hearing this week. Although most of the hearing was taken up with Geithner’s personal tax fiddles, the nominee declared that the Obama Administration intends to “fundamentally reform” the bailout program with “tough conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent and the results those investments are delivering.”

This is what watchdog groups have been demanding since the bailout first started. Last month, more than 75 organizations led by Open the Government.org and the National Taxpayers Union sent an open letter to Congress demanding bailout transparency. They are now planning to relaunch that effort.

So far, the Obama Administration is saying all the right things about transparency and accountability, but it has a monumental task before it to make truly open government a reality. We need to make sure it does not cut any corners.

Note: This piece has been crossposted on the Good Jobs First sister blog Clawback.

Eyes on the Ties

Watch out, Big Brother—LittleSis is here. LittleSis is a new website that seeks to collect, assemble and analyze relationships among members of the corporate and political elites. Kevin Connor, a veteran researcher-campaigner for labor unions and community groups who co-founded the site, calls it “an involuntary Facebook for powerful people…It opens up elite networks for inspection.”

Like most ambitious web projects these days, LittleSis is based on “crowd sourcing”—the idea that you can depend on a large number of volunteers contributing small bits of information to create an effective information resource. The site welcomes all contributors but insists that any data posted be linked to a reputable online source. In a post on the site’s “Eyes on the Ties” blog, co-founder Matthew Skomarovsky said that references to Wikipedia, for example, would not be acceptable. The aim is to use primary source material as much possible.

While still in preliminary Beta form, LittleSis boasts that it has entries on more than 27,000 individuals. Searches can also be done on institutions, companies and other entities. Connor pointed me to the material on the exclusive Augusta National Golf Club in Georgia (reached by putting the club’s name in the search box on the main page). The names of 211 members are listed. You can either click on a person’s name to see his (the club is all-male) other affiliations, or you can click on one of several tabs to see summary data such as which political candidates club members have contributed to and which universities they attended.

Funded by the Sunlight Foundation, LittleSis is programmed to highlight relationships, so that, for example, any data added to an individual’s entry mentioning an institution will automatically also post to the entry for the institution.

LittleSis is an exciting project that reinvigorates the tradition of power-elite research pursued in the pre-internet era by authors such as Gabriel Kolko and William Domhoff. It also builds on previous online efforts such as TheyRule. It could become an invaluable tool to help us understand the powers that be and pursue campaigns that make them less powerful.

Note: Connor tells me that the LittleSis team is willing to make presentations about the site to organizations (presumably those with lots of researchers will be high on his list) to explain how it works and to encourage people to contribute. Contact him here.

Citigroup (1998-2009) R.I.P.

Citigroup was born illegitimate and, having recently become a ward of the federal government, is now in the process of being dismembered. It’s amazing what a difference a decade makes. In April 1998 financial wheeler dealer Sandy Weill (photo) defied federal laws preventing marriages among banks, brokerage houses and insurance companies and pushed through a then-astounding $70 billion merger between his Travelers Group and commercial banking giant Citicorp. Weill won his bet that Glass-Steagall restrictions would fall, and he created what was then the world’s largest financial institution.

The deal was a desperate attempt to achieve the 1990s dream of the financial supermarket—institutions that would meet the public’s every monetary need, from checking accounts and business loans to mutual funds, homeowners insurance and credit cards. It was also a reach for supposed greatness by Weill and his Citicorp counterpart John Reed. As Business Week put it at the time: “In addition to chutzpah, Reed, 59, and Weill, 65, are propelled by their shared desire to go out in a blaze of glory.”

“Glory” is not exactly the way to describe the subsequent ten years of controversy, scandal and unwise investment and lending practices. Weill and Reed, each with the title of co-chief executives, bickered openly with each other. The company’s private banking operation was caught up in a money laundering investigation. Its credit card operations had to pay $45 million to settle lawsuits charging that consumers were improperly charged late fees. The bank was accused of enabling some of Enron’s accounting fraud. It was also embroiled in the WorldCom accounting scandal and had to pay $2.65 billion to settle lawsuits brought by investors in the failed telecommunications company.

But one of the worst moves was the decision in 2000 to acquire Associates First Capital, a pioneer in the subprime lending market that would later help to weaken the entire banking system. The acquisition, like the creation of Citigroup itself, was part of the mindset of trying to cover all corners of the financial services industry and of pumping up business even when transactions were excessively risky. The company touted plans to clean up the disreputable subprime business, but even that was a sham. According to the Wall Street Journal (7/18/02), branch offices were notified ahead of time when undercover “mystery shoppers” were being sent in to investigate loan origination practices.

Chuck Prince, who was named CEO in 2003, tried to clean up Citigroup in part by selling off pieces of the supermarket such as the Travelers life insurance business. Ultimately, though, Prince himself was disposed of as well. Yet the leviathan’s problems continued. Now his successor, Vikram Pandit, is taking a similar approach of lopping off parts of the company in the vain hope this will do the trick.

The just-announced decision to spin off the Smith Barney brokerage business into a joint venture with Morgan Stanley will bring in a much needed cash infusion of $2.7 billion. Yet it appears Citi is still living in a state of denial. It put out a press release headlined “Morgan Stanley and Citi to Form Industry-Leading Wealth Management Business Through Joint Venture.” What it really should have said is: “we screwed up royally, and despite getting tens of billions of taxpayer dollars, we’ve got to sell off some of our assets that are still worth something.” We’ll see how long the bravado continues as the company is forced to cut off more of its many limbs.