London’s Most Influential: Citigroup and the Subprime Mortgage Crisis

‘What makes a city influential? Some say it’s the economic opportunities or the technological capabilities or the possibilities of connecting with other cities. We say it all comes down to people. The progress-makers. The ones whose boundless drive, passion and brilliance bring a city to life like no other. They’re why we’ve made it our job to be here. Believing in their ideas. Backing their ambitions. Making them real. In London. Around the world.

– Citigroup, The Progress 1000: London’s Most Influential People (2018)

‘The Truth is like poetry. And most people fucking hate poetry.’

The Big Short (2015)

Citigroup Inc. is an American multinational investment bank and financial services corporation with its headquarters in New York City. Citigroup owns Citicorp, the holding company for Citibank, as well as several international subsidiaries. Citigroup is ranked 3rd on the list of largest banks in the United States and, alongside JPMorgan ChaseBank of America, and Wells Fargo, is one of the Big Four banks. Citigroup is rated a systemically important financial institution and as such is on the list of systemically important banks that are regarded as too big to fail. It is also one of the nine global investment banks in the Bulge Bracket. Citigroup is ranked 32nd on the Fortune 500 list of the largest United States corporations by total revenue for their respective fiscal years. Citigroup has over 200 million customer accounts and does business in more than 160 countries. It has 209,000 employees, although it had 357,000 employees before the financial crisis of 2007-2008, when it was rescued via a massive stimulus package by the U.S. government.

The Subprime Mortgage Crisis

Heavy exposure to troubled mortgages in the form of collateralised debt obligation (CDOs), compounded by poor risk management, led Citigroup into trouble as the subprime mortgage crisis worsened in 2008. The company had used elaborate mathematical risk models that looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages. Trading head Thomas Maheras was close friends with senior risk officer David Bushnell, which undermined risk oversight. As Treasury Secretary, Robert Rubin was said to be influential in lifting the Glass–Steagall Act that allowed Travelers and Citicorp to merge in 1998. Then on the board of directors of Citigroup, Rubin and Charles Prince were said to be influential in pushing the company towards mortgage-backed security (MBS) and CDOs in the subprime mortgage market.

Starting in June 2006, Senior Vice President Richard M. Bowen III, the chief underwriter of Citigroup’s Consumer Lending Group, began warning the board of directors about the extreme risks being taken on by the mortgage operation that could potentially result in massive losses. The group bought and sold $90 billion of residential mortgages annually. Bowen’s responsibility was essentially to serve as the quality control supervisor ensuring the unit’s creditworthiness. When Bowen first became a whistleblower in 2006, 60 per cent of the mortgages were defective. The amount of bad mortgages began increasing throughout 2007 and eventually exceeded 80 per cent of the volume. Many of the mortgages were not only defective, but were a result of mortgage fraud. Bowen attempted to rouse the board via weekly reports and other communications. On November 3, 2007, Bowen emailed Citigroup Chairman Robert Rubin and the bank’s chief financial officer, head auditor and the chief risk management officer to again expose the risk and potential losses, claiming that the group’s internal controls had broken down and requesting an outside investigation of his business unit.

The subsequent investigation revealed that at the Consumer Lending Group had suffered a breakdown of internal controls since 2005. Regardless of the findings of the investigation, Bowen’s charges were ignored, despite the fact that withholding such information from shareholders violated the Sarbanes–Oxley Act (SOX), which he had pointed out. Citigroup CEO Charles Prince signed a certification that the bank was in compliance with SOX despite Bowen revealing this wasn’t so. Citigroup eventually stripped Bowen of most of his responsibilities and informing him that his physical presence was no longer required at the bank. The Financial Crisis Inquiry Commission asked him to testify about Citigroup’s role in the mortgage crisis, and he did so, appearing as one of the first witnesses before the Commission in April 2010.

As the crisis began to unfold, on 11 April 11, 2007, Citigroup announced that it would eliminate 17,000 jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock. Even after securities and brokerage firm Bear Stearns ran into serious trouble in the summer of 2007, Citigroup decided the possibility of trouble with its CDO’s was so tiny (less than 1/100 of 1 per cent) that they excluded them from their risk analysis. With the crisis worsening, on 7 January, 2008, Citigroup announced that it was considering cutting another 5 percent to 10 percent of its 327,000 member-workforce.

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The Architecture of Death

IMG_3354

As some of you will know, on Tuesday, 2 October a man was killed by a window pane falling from the Corniche building, which with Merano Residences (designed by Rogers Stirk Harbour & Partners) and the Dumont building (designed by David Walker Architects) is one of three new developments of what the advertising boards call ‘luxury apartments and penthouses’ that make up the newly-named Albert Embankment Plaza. This lies within the Vauxhall, Nine Elms, Battersea Opportunity Area, over which the London Mayor has planning authority.

Like the other two buildings comprising the Albert Embankment Plaza, the Corniche was built by the Berkeley Group, the largest property developer in London, which has 75 per cent of its sites inside the M25, and pre-tax profits for the year ending April 2018 of £934.9 million, up 15 per cent on the previous year. The building was designed by Foster + Partners, the largest architectural practice in the UK, with pre-tax profits last year of £20.8 million, and whose partners took £23.4 million in bonuses, up 43 per cent on the previous year.

ASH went round to have a look at the building later that day, and the fallen pane could clearly be seen missing from the penthouse apartment on the 27th floor. The last five remaining 2-, 3- and 4-bedroom apartments are currently on sale for between £2.7 million and £6.25 million, but the penthouse from which the window pane fell was reported by the architecture and design magazine Dezeen to have been on the market for £22 million (although this information has subsequently been removed).

Apparently this isn’t the first time a window pane has fallen from the building. Last August, during construction of what Foster’s website describes as ‘curved gardens in the sky’, another pane slipped from its frame and nearly hit two carpenters working on the site. Despite this precedence, the hoardings outside the building advertise the Corniche as ‘Life ahead of the curve’, the irony of which disappears with this latest fatality from London’s housing.

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Calling All Architects: New Approaches to Old Housing

This article is based on separate video conference interviews conducted by Emily Schmidt in October 2017 with Geraldine Dening and Simon Elmer of Architects for Social Housing (ASH), architect Frédéric Druot, and Graeme Stewart and Ya’el Santopinto of ERA Architects and the Centre for Urban Growth and Renewal (CUG+R).

Emily Schmidt and Rosalie Genevro, ‘Calling all Architects: New Approaches to Old Housing’, in Housing as Intervention: Architecture Towards Social Equity, guest-edited by Karen Kubey, Architectural Design, vol. 88 (July/August 2018)

Southwark Sleeper: A New Housing Initiative for London’s Homeless (Or Not)

In exciting news for developers, Sadiq Khan has announced a new package of funding under his Homes for Londoners programme. In collaboration with Southwark council, ‘Southwark Sleeper’ will be test-piloted this winter as a solution to the growing army of London’s homeless. Peter John OBE, Leader of Southwark council and newly-elected Chair of London Councils, told reporters: ‘I’m very excited about this new initiative, which demonstrates once again that Labour is the party of practical solutions. Every homeless family will be offered their very own container, the construction of which by Sheffield-based My Container Ltd will be subsidised by London’s Labour Mayor to the sum of £50,000 per container. All the lucky recipient has to do is clean up the contaminated land on which it will be located.’ When asked whether constituents refusing to be housed in the containers will be classified as ‘intentionally homeless’, Councillor John said he had an urgent business lunch with property developers Lendlease at the London Stadium and ‘couldn’t take anymore questions’.

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What Is To Be Done? Changing Metaphors of Change

Jean-Luc Godard, La Chinoise (1967)

1. Radical for Revolutionary

During my misspent youth we spoke, however hopelessly – no doubt because hopelessly – of ‘revolution’; even, with an eye to dialectical materialism, of ‘The Revolution.’ I was so much older then, I’m younger than that now. But nowadays (except among my communist comrades) the standard appellation among socialists and activists alike, including many self-styled anarchists, is the word ‘radical’, which is used to describe everything from networks, assemblies, meetings, marches, communities, groups and theories, to book fairs, magazines, trainers, pop bands, fitness clubs, restaurants, marketing consultants and advertising agencies. To understand this shift in metaphor – from the turning wheel of revolution to the excavated root of radicalism – it’s useful to consider the origins of this word, both etymological and historical, and why it has been adopted as a viable alternative to the previously revolutionary aims of political practice. This definition is from the Oxford English Dictionary:

Radical / adjective & noun
[Late Latin radicalis, from Latin radix: root.)
A. adjective. 
1. Forming the root, basis, or foundation; original, primary. (Late Middle English)
2. a. Of a quality etc: inherent in the nature of a thing or person; fundamental. (Late Middle English) b. Of action, change, an idea, etc: going to the root or origin; pertaining to or affecting what is fundamental; far-reaching, thorough. (Middle 17th Century) c. POLITICS. Advocating thorough or far-reaching change; representing or supporting an extreme section of a party; specifically: History. belonging to an extreme wing of the Liberal Party. (Early 19th Century) d. Characterised by departure from tradition; progressive; unorthodox. (Early 20th Century)
B. noun.
1.
PHILOLOGY. a. A root; a radical word or letter.

2. A basis, a fundamental thing or principle. (Mid 17th century)
5. A politically radical person. (Early 19th Century)

The political sense of radical as meaning ‘change from the roots’ was first recorded in 1802 (as a noun) and in 1817 (as an adjective) to describe the extreme section of the bourgeois Whig Party, which went on to form the Liberal Party in 1859. It has been used to mean ‘unconventional’ since 1921, and has been used in slang since 1983, derived from 1970s U.S. surfer-slang meaning ‘at the limits of control’.

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The Propaganda of Estate Regeneration: The Lincoln Estate, Poplar Harca and the British Broadcasting Corporation

In April of this year the BBC re-televised its three-part series Dan Cruickshank: At Home with the British, which had originally been aired in May 2016, and was again in May 2017. Halfway through the final episode, ‘The Flat’, which focuses on the history of the Lincoln estate in London’s Bow, Dan Cruickshank jumps into a Black Cab and says:

‘When the Lincoln estate was designed, the London County Council had the largest, and in many ways the finest, architectural practice in the world. Indeed, it was responsible for some of the most iconic modernist housing schemes in Europe.’

So it’s a shame that, when he gets out the cab and speaks to Historic England’s Elaine Harwood, who sings the praises of its housing schemes, he doesn’t ask her why Historic England didn’t see fit to list Central Hill estate, one of the LCC’s masterpieces, and save it from demolition by the vandals at Lambeth Labour council.

Nonetheless, Cruickshank accurately identifies three of the main causes of the decline of council estates in the UK in the late 1960s and 70s:

  1. The poor construction methods of unregulated developers throwing up systems-built housing, leading to the collapse of Ronan Point in 1968;
  2. The systematic neglect and lack of maintenance and refurbishment of buildings by councils;
  3. The obligation of those same councils, following the 1977 Housing Act, to house the homeless, leading to the change in the use of council estates as homes for working class families to becoming dumping grounds for everyone who had fallen through the welfare net and, soon after, Margaret Thatcher’s brave new world of free market capitalism.

What Cruickshank doesn’t identify is the impossibility of any form of public housing existing within the logic of an unregulated capitalist economy that must always find new markets in which to invest its surplus, which is the primary cause of the mass demolition and privatisation of council housing that is happening today.

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Manufacturing Consent: GLA Capital Funding Guide: Section 8. Resident Ballots for Estate Regeneration Projects

Jeremy Corbyn launches the Labour Party’s local election campaign, April 2018

This is ASH’s brief commentary on the Greater London Authority policy on Resident Ballots for Estate Regeneration Projects, the recently published addendum to the London Mayor’s Good Practice Guide to Estate Regeneration, and the outcome of the promise to ballot residents made by Jeremy Corbyn at the Labour Party conference back in September 2017. This is the policy document that has had Labour supporters panting with anticipation ever since as they look forward to what the Labour Leader promised would be estate regeneration ‘for the benefit of the local people, not private developers, not property speculators,’ with the added stipulation that ‘councils will have to win a ballot of existing tenants and leaseholders before any redevelopment scheme can take place. Real regeneration, yes, but for the many not the few!’ Unfortunately, like all the promises made by the Labour Leader, this has failed to materialise.

As an example of the servile appeasement of property developers masquerading as resident empowerment this document will take some beating in the consistently appalling housing policy coming out of the GLA under the title of Homes for Londoners; but for those of us attentive to the yawning chasm between the socialist rhetoric of the Labour Party and the neo-liberal reality of its policies, this is both instructive and indicative of the extent to which Jeremy Corbyn will be able to keep all his other pie-in-the-sky promises if (as seems increasingly unlikely) he is elected to head the government of this country.

A commentary on every implication of this former lawyer’s circumlocutions would, as in our commentary on the Labour Mayor’s Draft Good Practice Guide to Estate Regeneration, be longer than the policy document itself, so I’ve confined myself to a series of questions which those Labour activists with access to Sadiq Khan may, given the chance, wish to address to him. So disastrous are the Mayor’s policies on estate regeneration, however, that it has become necessary to start writing our own. These questions, therefore, are followed by some of ASH’s own policy proposals that need to become reality – and soon – if we are to see estate refurbishment and, where appropriate, infill become the enforceable default option for any council or housing association undertaking the regeneration of a housing estate.

Continue reading “Manufacturing Consent: GLA Capital Funding Guide: Section 8. Resident Ballots for Estate Regeneration Projects”