By Simon Johnson

Just a few short days ago, it looked like Citigroup was on the ropes. The company’s proposal for redistributing capital back to shareholders was rejected by the Board of Governors of the Federal Reserve System. Given the global bank’s repeated fiascos – including most recently the theft of around $400 million from its Mexican unit – it is hardly surprising that the Fed has said “no” (and for the second time in three years).

The idea that Citigroup might now or soon have a viable “living will” now seems preposterous. If top management cannot run sensible financial projections (that’s the Fed’s view; see p.7 of the full report), what is the chance that they can lay out a plausible plan to explain how the company, operating in more than 100 countries worldwide, could be wound down through bankruptcy – without any financial assistance from the government? According to the Dodd-Frank financial reform law, failure to submit a viable living will should result in remedial action by the authorities.

Such action has now been taken: CEO Michael Corbat has been named to a top White House job, with responsibility for helping to develop “financial capability for young Americans.”

Given that today is April 1st, this announcement may seem a fairly obvious canard (along the lines of some previous April Fools’ Posts on this website, including regarding the gold standard last year).

But the White House announcement is dated March 27, 2014 (just as the failed stress test news was breaking) – and it is their media team who use the term “top administration post”. Mr. Corbat’s new job has subsequently been confirmed by the Financial Services Roundtable (roundup email of 03/28/14), and no one knows more about the detailed relationship between Big Finance and government.

Presumably, Mr. Corbat’s appointment will help prepare the next generation of Americans for deep recession, job losses, and dismal prospects due to major miscalculations by Citigroup and other big banks – including what these firms have done, what they are doing now, and what they will do.

The agenda for discussion with current distinguished members of this policy council (full name: President’s Advisory Council on Financial Capability for Young Americans) could also usefully include:

The White House may be onto something. If only we could all behave like top Citigroup executives, as a nation we could become much wealthier – systematically expropriating from investors without any adverse consequences for our careers or even our immediate compensation. This is the kind of logic that won the Institute of International Finance two Nobel prizes in 2011 and that lies behind continued opposition to the Volcker Rule.

At the end of his detailed account of miscalculation and overconfidence among Citigroup executives, published in 1995, Phillip L. Zweig writes (Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, p. 3) that,

“Citigroup had essentially lost a decade. But along the way, Reed [then-CEO] and his institution had lost much of their hubris. Because of that, there was finally reason to believe that their near-fatal mistakes would not soon be repeated.”

Executives at Citi and elsewhere definitely learned the lessons of the 1970s and 1980s, but not in the way Mr. Zweig envisaged.

Size is power in the modern American economy. If you are building a bank, executives reasoned in the 1990s and early 2000s, it’s better to make it as big as possible. From a personal point of view, they have been proved right again and again. (From a social point of view, this has proved an unmitigated disaster.)

The truth is Citigroup is now and has long been a badly run company. It should be euthanized by the market, but continues in existence because it is protected by regulation and regulators against being taken over and broken up into more efficient pieces (with some of the worst businesses simply being closed).

The Citigroup case is fascinating because it suggests the Federal Reserve may now be standing up to at least the weakest (from a management perspective) of the Too Big to Fail US banks.

From a political perspective, what matters is not so much the Fed as the White House.

As with everyone in Washington, watch what they do, not what they say.

And the most important question is: Who is admitted to top policy circles? What kind of experience makes someone into an expert who speaks directly to the president – and into a role model held out for young people to emulate?

Mr. Corbat’s new position confirms that, once again, it doesn’t matter how badly Citigroup did on your watch – the White House will hire you for your supposed expertise in any case.