Blame at Citi stretches to highest level

Laxity of bank's risk managers reaches back more than a year

Citigroup insiders and analysts say that Prince and Rubin played pivotal roles by drafting and blessing a strategy that involved taking greater trading risks to expand business and reap higher profits. Prince and Rubin both declined to comment for this article.

As treasury secretary during the Clinton administration, Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities.

And since joining Citigroup in 1999 as a trusted adviser to bank's senior executives, Rubin, who is an economic adviser on President-elect Barack Obama's transition team, has sat atop a bank that has been roiled by one financial miscue after another.

For a time, Citigroup's megabank model paid off handsomely. But when its trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it also moved billions of dollars of troubled assets off its books through accounting maneuvers to free capital. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.