Citigroup's Mexican Cronies

With estimates of the losses from the subprime mortgage fiasco spiraling past $100 billion, Citigroup, Bank of America and similar citadels of financial genius are deep in a huddle with the Treasury over some sort of rescue operation. Pundits are shocked at the prospect of taxpayers bailing out companies whose middle managers are distraught if their year-end bonuses come to less than seven figures. After all, deregulation and global competition was supposed to banish the cozy relationship between big business and big government that justifies corporate welfare under the slogan "Too Big to Fail."

But a look just south of the border--where Citigroup has also been making headlines--reminds us that crony capitalism is not some anomaly that rears its hypocritical head in times of financial crisis. It is built into the DNA of multinational banking.

On October 17 the Mexican government announced that a syndicate organized by Banamex, Citigroup's Mexican subsidiary, had bid for and won at auction Aeroméxico, the country's largest airline. Having bailed out Aeroméxico's former owners eighteen years ago, the government owned a majority of the company's stock, which it was now privatizing.

The news was accompanied by photo-ops of smiling bureaucrats shaking hands with happy plutocrats from the Citigroup/Banamex syndicate. Frontman for the syndicate is José Luis Barraza, a major fundraiser for Mexican President Felipe Calderón. Barraza financed the vicious campaign attack ads against leftist candidate Andrés Manuel López Obrador, which were a major factor in Calderón's narrow and possibly fraudulent victory last year. A Mexican court later acknowledged that the ads were illegal but with a straight face declared that they didn't affect the outcome of the election--won by 0.5 percent of the vote.

Shortly after the announcement of the Aeroméxico sale, it leaked out that Citigroup/Banamex had not been the highest bidder. Less than three minutes after its bid, the government was offered a higher price by a group headed by a businessman to whom the Mexican president did not owe any favors. The Calderonistas disqualified the higher bid on the grounds that it had come too late, i.e., after a deadline that Citigroup/Banamex had insisted the government impose. The decision violated the law, which forbids arbitrary closing of a privatization auction under such circumstances. When the losing bidder was asked if he was going to sue, he declined. He had plenty of evidence the deal was rigged, he said, but the fix was in, and there was no way he could beat the Citigroup-government alliance in a Mexican court.

As one Mexican newspaper put it, Citigroup/Banamex got control of an entire airline for practically the price of one new advanced-design airplane. Moreover, at least part of the money Citigroup/Banamex is paying the Mexican government for Aeroméxico comes from huge subsidies the bank is already receiving from--you guessed it--the Mexican government.

In 1982, when the peso crashed, the government bought Banamex as a way of rescuing the bank and its Mexican owners from bankruptcy. In 1991 Mexican President Carlos Salinas resold it for $4.6 billion to a business group headed by a close ally, Roberto Hernández. Two years later Salinas signed the North American Free Trade Agreement, which included a timetable for dismantling Mexico's law against foreign ownership of its commercial banks. The foremost champion of NAFTA in the Clinton White House was economic adviser Robert Rubin, formerly co-chair of Goldman Sachs. When another peso crisis hit Mexico in 1994, Rubin, then US Treasury Secretary, financed a bailout of the Wall Street holders of Mexican bonds. As part of the complex deal, Salinas's successor, Ernesto Zedillo, agreed to accelerate the opening up of Mexican banks to foreigners.