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BEFORE OUR VERY EYES
ernment regulators. Gelband left; Lehman officials blamed Gelband’s departure on
“philosophical differences.”
At Citigroup, meanwhile, Richard Bowen, a veteran banker in the consumer lend-
ing group, received a promotion in early when he was named business chief
under writer. He would go on to oversee loan quality for over billion a year of
mortgages underwritten and purchased by CitiFinancial. These mortgages were sold
to Fannie Mae, Freddie Mac, and others. In June , Bowen discovered that as
much as of the loans that Citi was buying were defective. They did not meet Citi -
group’s loan guidelines and thus endangered the company—if the borrowers were to
default on their loans, the investors could force Citi to buy them back. Bowen told the
Commission that he tried to alert top managers at the firm by “email, weekly reports,
committee presentations, and discussions”; but though they expressed concern, it
“never translated into any action.” Instead, he said, “there was a considerable push to
build volumes, to increase market share.” Indeed, Bowen recalled, Citi began to
loosen its own standards during these years up to : specifically, it started to pur-
chase stated-income loans. “So we joined the other lemmings headed for the cliff,” he
said in an interview with the FCIC.
He finally took his warnings to the highest level he could reach—Robert Rubin,
the chairman of the Executive Committee of the Board of Directors and a former
U.S. treasury secretary in the Clinton administration, and three other bank officials.
He sent Rubin and the others a memo with the words “URGENT—READ IMMEDI-
ATELY” in the subject line. Sharing his concerns, he stressed to top managers that
Citi faced billions of dollars in losses if investors were to demand that Citi repurchase
the defective loans.
Rubin told the Commission in a public hearing in April that Citibank han-
dled the Bowen matter promptly and effectively. “I do recollect this and that either I
or somebody else, and I truly do not remember who, but either I or somebody else
sent it to the appropriate people, and I do know factually that that was acted on
promptly and actions were taken in response to it.” According to Citigroup, the
bank undertook an investigation in response to Bowen’s claims and the system of un-
derwriting reviews was revised.
Bowen told the Commission that after he alerted management by sending emails,
he went from supervising people to supervising only , his bonus was reduced,
and he was downgraded in his performance review.
Some industry veterans took their concerns directly to government officials.
J. Kyle Bass, a Dallas-based hedge fund manager and a former Bear Stearns executive,
testified to the FCIC that he told the Federal Reserve that he believed the housing se-
curitization market to be on a shaky foundation. “Their answer at the time was, and
this was also the thought that was—that was homogeneous throughout Wall Street’s
analysts—was home prices always track income growth and jobs growth. And they
showed me income growth on one chart and jobs growth on another, and said, ‘We
don’t see what you’re talking about because incomes are still growing and jobs are still
growing.’ And I said, well, you obviously don’t realize where the dog is and where the
tail is, and what’s moving what.” 
