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Updated Wednesday, November 26, 2008 10:23 am TWN, By Steven Pearlstein, The Washington Post

Is Citigroup too big to succeed?

In John Reed, the former chief executive of Citibank, Weill had a co-chief executive who was an MIT-trained engineer deeply skeptical of Wall Street financial engineering and committed to consumer banking and sound commercial underwriting — until Weill ousted him in a boardroom coup. And in Jamie Dimon, Weill had a lieutenant who was both a brilliant strategist and self-confident leader who could have saved Citi from following the Wall Street herd over the cliff — as he subsequently did at J.P. Morgan Chase — if Weill had only been willing to name him heir apparent. Surely neither Reed nor Dimon would have been as clueless as Prince about the risks taken by his subordinates. Nor would either have been so determined to run with the Wall Street herd, as Prince clearly was when he told the Financial Times in the summer of 2007 that while it was obvious that a huge credit bubble had developed, Citi had no choice but to keep dancing as long as the music was playing.

There is one top Citi executive, however, who has managed to serve alongside Weill, Prince and the newest chief executive, Vikram Pandit, with surprisingly little damage to his own reputation.

As Treasury secretary, Robert Rubin joined with Greenspan in supporting Citi’s campaign to repeal Glass-Steagall. And when he resigned from Treasury in 1998, Rubin accepted Weill’s offer to become vice chairman of Citi, where he has quietly worked the back channel to Washington and other international capitals and served as strategic counselor to the chief executive and the board of directors.

Although Rubin has been cagey about his role at Citigroup, what is indisputable is that all of the decisions that have led to Citi’s recent troubles were taken while he was chairman of the executive committee and were made by executives whom he supported and with whom he worked closely day to day. He supported them when they were criticized, and as a director he approved compensation packages that rewarded them (and himself) handsomely for judgments that turned out to have been disastrous for the shareholders.

Yet even as the government has now been forced to step in to save Citi by investing US$45 billion in new capital and putting a floor under its losses, Rubin and all the other directors and top executives have been allowed to remain at the helm. You have to wonder how much more of the shareholders’ and the taxpayers’ money they would have to lose — US$100 billion? US$200 billion? US$1 trillion? — before the Treasury and the Fed would demand their resignations.

The ultimate irony, of course, is that just as Rubin & Co. at Citi were being bailed out by the Bush administration, President-elect Barack Obama was getting set to announce a new economic team drawn almost entirely from Rubin acolytes.

That’s not to take anything away from the qualifications of Timothy Geithner, Obama’s pick to be Treasury secretary, who owes his current position as president of the Federal Reserve Bank of New York to Rubin’s aggressive lobbying; or soon-to-be White House senior economic adviser Lawrence Summers, who was Rubin’s deputy secretary at the Treasury and whose appointment as president of Harvard was championed by Rubin as a member of the university’s government board; or Peter Orszag, Obama’s choice to be budget director, who was hired by Rubin to head a Democratic think tank on economic policy that he founded. They make a great team.

But perhaps the next time Obama thinks about assembling a group of wise men to advise him on the economic crisis, he might consider leaving Rubin out of the mix. The accountability that Obama has promised to bring to economic policy should start at home.

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