I think [Treasury Secretaries Robert Rubin and Larry Summers] were wrong and I think I was wrong to take [to take their advice], because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.

Clinton’s admission underscores the basic importance of financial regulation; during the boom and bust, derivatives, worth at least $4.5 trillion notionally, went entirely unregulated.

Prince opened his remarks with regrets. “I’m sorry,” he said. “I’m sorry the financial crisis has had such a devastating impact for our country. I’m sorry about the millions of people, average Americans, who lost their homes. And I’m sorry that our management team, starting with me, like so many others could not see the unprecedented market collapse that lay before us.” (The apologia deviated from Prince’s prepared statement, which read: “I can only say that I am deeply sorry that our management, starting with me, was not more prescient and that we did not foresee what lay before us.”)

Such candor was unexpected and, at least judging the faces of the commissioners, welcome. But hours of rationalization, blame shifting, and evasion followed during questioning that at times became heated. Indeed, while Rubin and Prince expressed regret in general, they refused to classify their own or any of Citigroup’s actions as anything other than mistakes made in the run-up to an unforeseeable bust.

The commissioners’ questions focused on mortgage-backed securities, the housing bubble, derivatives regulation, Citigroup’s losses and the problem of too big to fail. “I personally do not think Citi was too big to manage,” Prince said, a sentiment Rubin echoed. Prince said the “broad, multifaceted and diversified nature” of Citigroup’s investments and liabilities did not “materially contribut[e] to our losses.”

That statement jarred with Rubin’s testimony; he cited the interconnectedness of financial firms and financial products, which undercut diversification, as particularly destructive during the financial crisis. Asked why he did not recognize the extent of Citigroup’s liabilities until too late, the former Treasury Secretary defensively noted that Citigroup managed “trillions” of dollars every day and the best risk management the company could perform was to put the “right people” in place. He also called Citigroup’s risk management “robust and proactive.”

FCIC Chair Phil Angelides later pointedly asked Rubin, “Do you bear central responsibility for the near-collapse, but for the government, of Citigroup?” He replied that Citigroup’s board, which he led, was not “a substantive part of the decision-making process” at the firm. “All of us in the industry failed to see the potential for this serious crisis. We failed to see the multiple factors at work.”

• The director of the National Economic Council, Larry Summers, paid lucrative visits to Goldman
• Treasury Secretary Tim Geithner’s chief of staff Mark Patterson was a Goldman lobbyist
• Geithner’s mentor Robert Rubin was a Goldman guy (and now serves at Citigroup)
• Commodities Futures Trading Commission chair Gary Gensler was co-head of finance at Goldman
• The National Economic Council’s deputy director Dianna Farrell did time at Goldman
• Federal Reserve Bank of New York Chairman William Dudley was Goldman’s chief economist for a decade

But one of the most prominent Goldman alumni in Europe today is Mario Draghi, currently the governor of Italy’s Central Bank — and perhaps a key player in Goldman’s backroom deals to hide Greece’s debt.

Draghi is poised to become the president of the European Central Bank, the entity in charge of the Eurozone’s common monetary policy. Despite the fact that he has denied any involvement in the 2000 and 2001 currency trades that hid enough of Greece’s debt to allow it to join the Eurozone, economist Simon Johnson reports that Draghi was, in fact, at Goldman and working on Greek issues in 2002, when Goldman helped sell Greek bonds without informing customers that Greece was hiding its debts.

Will these revelations scuttle Draghi’s chances of ascending to the chairmanship of Europe’s Central Bank? Goldman, and its derivatives, are increasingly unpopular in Europe. But Draghi should take heart: European voters don’t get to decide who heads the Central Bank — and he’ll have plenty of company atop the international banking scene. The head of Canada’s central bank, Mark Carney, is a Goldman alum too.

From Baker:

The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President [-elect Barack] Obama’s stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law.

There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin’s Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007.

And why would such a tax break be part of the stimulus plan? Note that earlier mention of Rubin, Baker says:

Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama’s economic team to be so generous to them? I don’t have an answer to that question, but the media should be asking it.

Consider it asked.

Vikram Pandit, Citigroup’s chief executive, wrote in a company-wide memo on Wednesday that because of its poor earnings performance, the bank’s bonus pool was dramatically lower than last year. As a result of that and last month’s government rescue, the bank’s compensation policies have been overhauled.“The most senior leaders should be affected the most,” Mr Pandit wrote, referring to himself and Win Bischoff, the bank’s chairman. “That is why Win Bischoff and I will receive no bonus for 2008. Win and I believe this is fair, in light of the challenges of the year and the need for compensation elsewhere in the organisation.“Meanwhile, Mr Rubin, a former US Treasury secretary, told the board that, under the circumstances and at this stage of his career, he felt the funds that would have been used for his bonus could be better spent on other employees, Mr Pandit wrote. Mr Rubin, who has earned more than $115m since joining Citi in 1999, also waived his bonus last year.

I’d be the first in line to pat these guys on the back, but consider this: A global bank proves itself to be nearly insolvent, triggering a government bailout to the tune of $300 billion – and the idea of bonuses was even on the table? Was Citigroup even thinking of rewarding performance this year? And based on… what, exactly?

It’s a smart move politically for the bank to give up those bonuses. I’m just wondering if Citigroup would do the same, if no one were watching. The fact that foregoing bonuses wasn’t off the table long ago makes me more than a little skeptical.