Greece Lifts a Page From Citigroup’s Playbook - by Jonathan Weil

Is it too much to ask for the world’s titans of government and finance to speak credibly when they open their mouths? Some of them sure seem to think so, judging by the latest news from the financial-crisis front.

To hear Vikram Pandit tell it, Citigroup Inc. was a healthy institution when it got bailed out by the U.S. government. The problem back in November 2008, Citigroup’s chief executive officer told a congressional oversight panel last week, was that short sellers were driving down its stock price in spite of the bank’s fundamental strength.

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In April 2008, Lehman Brothers Holdings Inc. CEO Dick Fuld declared the “worst is behind us,” while blaming short sellers for his bank’s faltering share price. (In a short sale, an investor sells borrowed shares in hopes of buying them back at a lower price later and pocketing the difference.)

By July, the Securities and Exchange Commission had unveiled the first in a series of emergency short-selling rules that made it harder for investors to bet against the stocks of Lehman and 18 other “substantial financial firms.” Instead of helping the companies, the move wound up highlighting which financial-services companies the government was worried about the most, including Fannie and Freddie.

That same month, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke testified in Congress that Fannie and Freddie were adequately capitalized. Two months later, Paulson directed the government to seize both companies because they were insolvent.