In Sunday’s New York Times, Eric Dash and Julie Creswell take apart the failed risk management practices at Citigroup in a detailed article that draws on extensive comments from bank insiders.

Much of the cause will be no surprise – traders overpowered the risk managers, a senior risk manager was good friends with the guy who ran the trading desk.

Robert Rubin, the former Clinton treasury secretary, gets tagged for pushing the bank to pile on risk to make more money,

Chuck Prince, the former corporate counsel who became chief executive, comes across as completely out of his depth – pushing for more CDOs. Prince “didn’t know CDO from a grocery list, so he looked for someone for advice and support. That person was Rubin,” says one former bank exec. Rubin famously told a journalist in the summer of 2007 that he had only recently heard the term “liquidity put.”

The bank’s risk practice never considered the possibility of a housing downturn. The writers say the Fed presented the bank with a scathing critique of its risk management practices earlier this year.

The problems were compounded by groups and systems that didn’t talk to each other. The article quotes Meredith Whitney, a banking analyst who was an early critic: “The businesses didn’t communicate with each other. There were dozens of technology systems and dozens of financial ledgers.”

This picture is consistent with the views I got from risk management experts when I was researching an article that will appear 1 December in Securities Industry News. The biggest source of problems was not inadequate technology but a failure by traders and risk managers to ask the right questions and a failure to look at a wider range of possible scenarios.

Put this piece in the risk management files for future reference.

Filed under: risk, Technology