So, now it’s Citi’s turn to get bailed out. The plan is to take on Citi’s losses beyond a certain (still undetermined) level. If the government does so, Citi will give it either warrants (the right to purchase shares later) or preferred shares. Shares are better for taxpayers. At the least what should happen is Buffett Shares: preferred shares with warrants as well.
When Switzerland did this for UBS, their agreement got them 6 billion of shares for 60 billion dollars of purchasing crap, with the debt held in a seperate entity, so that if it all goes down, UBS won’t take the losses. Good deal, if you can get it.
The rule here continues to be the same as it has been throughout this crisis: the people who caused the crisis must be left in charge of the organizations, the executive class running financial institutions must not be significantly harmed.
Because these folks are not competent, this is clearly the wrong decision, yet again. If they were capable of managing Citigroup properly, they would have done so. They didn’t because they aren’t able to do so. The correct decision is to simply nationalize the firm and replace the key executives. Then, in the case of Citigroup, which is too large to be effectively managed, it should be broken up.
I note that Citi was the bank the FDIC wanted to have take over Wachovia, instead of Wells Fargo. The FDIC was very insistent on that despite Wells Fargo making a far better offer and not needing government help. Citi now being in trouble proves what many of us noted then, that Citi was not the best candidate and that the FDIC’s insistence was very odd, raising questions of improper influence or incompetence.
Citi may be "too big to fail" but it’s not too big to take over. Let’s hope that the FDIC and other key regulators stop protecting the executives of these firms and start protecting the taxpayer properly. At the least they should get Buffett Shares equal to whatever injection of capital they give, but ideally they should simply take Citi over.
Related posts:
- FDL Book Salon Welcomes Barry Ritholtz – Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy
- The Next Big Taxpayer Bailout? IMF Could Get Hundreds of Billions for European Banks
- Bank Bailout: When a Bonus Exceeds Earnings, How is It Not Fraud?
- Unemployment Still Rising; Good Thing Collins, Snowe and Nelson Aren’t in Charge
- WaPo’s Pearlstein Promotes the Gang of Six Insurance Bailout
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good evening, Ian
Digg it here
Dugg, thanks for the link.
“The correct decision is to simply nationalize the firm and replace the key executives. Then, in the case of Citigroup, which is too large to be effectively managed, it should be broken up.”
yes.
and no golden parachutes.
Wait a minute, why don’t we get Citi hearings where they have to justify their union contracts?
Oh that’s right, they don’t have any unions. They’re just asking for what, six times as much money?
Never mind.
there should be hearings where CITI would have to justify its incompetent executives’ compensation.
And what happened to the first 25 billion?
It’s like the Shock Doctors are smoking money crack!
Sadly, it is quite clear now that Paulson is simply another typical Bushevik crony capitalist. As far as he is concerned the bailout money is intended to enrich his friends and everyone else can simply stick it.
To the plunderers go the plunder…your tax dollars to the biggest wall street casino. The invisible hand regulates so well that the global economy is toast.
Make them file for Bankruptcy…! ;-)
I figured it was safe to just assume that when Bush nominated him for the job. I didn’t need for Paulson to play tiddlywinks with the entire fucking economy just to validate that assumption.
I always generally assumed it, but there were vague glimmers along the way that he might almost be competent. It is now clear those were only fleeting aberrations.
Now this is interesting the Big three has to file for Bankruptcy so the big three Banks have to file for bankruptcy protection as well. Where then is our $750 billion? They won’t day! Wow now that is oversight I could use.
What percent of the USA is owned by foriegn soveriegn funds? Do we have any equity left to mortgage?
If you’re going to steal, it’s best to do so in the biggest possible way. A lesson those folks serving time for stealing liquor from a grocery store failed to learn.
I’m so conflicted…
Steve Forbes: Paulson “Worst Treasury Secretary” In Modern Times
Paulson is doing a great job retiring the government through transfer payments from the treasury to the private sector by direct infusion into wall street. The Home of Rubin and Paulson, Jesus FC on a crutch what part of the rip off don’t people get. Before the crash a 10 year investment in Standards and Poors would net you a profit of zero! They lost 1/2 of there retirement! And these are the people that we are allowing to take this money. Bail out the economy not the theives. Ala main street.
These people hate government and are trying to destry it! Where is Paul Revere when you need him? The neocons are coming…the neocons are coming let’s fund religion…the Church will rule the state…the protestant Vatican.
Paulson will keep big NYC banks out of bankruptcy at all costs.
Heaven forbid the criminal conspiracy to loot MSA ever sees the light of day.
Proving the old adage about the stopped clock….
Thank you for these VERY timely essays Ian. You reasons for taxing the rich posted earlier was also superb.
We gave the moneychangers too much power and now we must get it back. And the REASON we must get it back is that we need to spend around $2 Trillion a YEAR for environmentally necessary infrastructure improvements. Of course, an economics could easily be constructed to achieve that end. But until progressives are armed with good talking points, the right-wing economists who have been in charge for the last 35 years are the only ones heard.
So thanks for always taking time to explain the reasons why progressive economics ALWAYS outperform the backward versions that have come to monopolize the conversation.
The crap pile is still around on the books. So why are we giving the people that made the crap pile trillions more of our dollars? We are talking worthless paper that is draggiong the econ down. They made the bad bets let them go under. The auto industry did not. Help them dig out of the mess that the wall steeter made. “Trading Places” still works for me.
Bushco and his neocon buds took down the global economy…noone at the G20 shook his hand. The sun is setting on the West. No jobs for this generation.
what is it, 57 days now til GWBush’s clock stops for good?
oh, except for the part where he is awarded executive-level wingnut welfare in some form for enabling the wealthy class of this country to loot it for the past 8 years…
The language in the original $700 billion bailout bill allowing Paulson to operate without oversight did not survive. Therefore why is it difficult to find out where Paulson invested the 1/2 that he has spent? Can’t Congress ask? If not, amend the law making it operable through Congressional oversight or by their designees. The economy is in too dire shape to have such time consuming dithering.
Does rather give one pause, doesn’t it. I think that even when the evil asshats say you are incompetent, that the verdict is in.
As far as I can tell, Forbes has only been right once so far, although if he repeated his description of Paulson I suppose that counts.
The beauty of this headline is that it can be used over and over: “_____ bailout: Leaving the Incompetents in Charge”
Very efficient.
With a name like “Evil Asshat,” it must be REALLY good jam…
It is the Bushevik ruling assumption. Hell, they have been doing it for 8 years themselves.
This giantism of failure within Wall St./Big Banking institutions surely should be traced back to the key players who unlocked doors,opened doors and left doors open to abuse of basic safeguarding,basic plus/minus risk management and dereliction of due diligence.
Why is no one being indicted? Why is no one being brought into courts of law and given a day of justice? Why is no one going to jail?
This is not unlike an airline letting planes takeoff knowing full well the pilots are not qualified to fly,the aircraft has serious safety or not airworthy airframe/powerplant violations or shortfalls.
After the crash does the airline management not encounter severe examination of practices and decision execution trail leading to the crash? Those who failed on technical,managerial points then assigned further consequences for criminal recklessness or gross negligence.
This Wall Street/Banking bailing out with no one getting the hook is nonsense. No–it is absolute nonsense.
Bring on the tumbrels!
He will, ratfood, he will. [/wilde]
Letting shitty bank fail will provide opportunity for local and regional banks to serve the needs of the local economies. We have many banks that are to small to fail. While the too big to fail banks are getting free capital to circle the little banks and gobble them up. So we are funding monopolies. The opposite of the anti trust laws that have been violated for 35 years of hostile takeovers and conglomerating the corporate environment. They played the risk game and lost..let a new business model be formed with a smaller sacle that has less risk. My local S&L was taken over by US Bank this week…pissed me off.
The permanent lesson of the Bush administration is that no one is held accountable, in government or business.
As it turned out, the theory of trickle down economics was correct. What they failed to tell us is that it is the economic disasters which trickle, not the successes.
teddy upstairs
ok.. it is completely beyond me why political bailouts in advance of a chapter 11 filing have become the norm
on recent years. The whole point of bankruptcy is to provide for the orderly resolution of a
company’s financial problems once mgmt’s capabilities have been exhausted. That’s why it’s called bankruptcy “protection.” A filing does not prevent the incorporation of provisions to inject public monies to
protect depositors or counterparties or, for that matter, salvagable company businesses and factories into the bankruptcy agreement.. in fact, such agreements could even be reached before hand in the case of prepackaged bankruptcy sales or structured filings.
The case for political bailouts to avert chapter 11 is to prevent market panic or a broader failing of confidence. Given that the mkts are already panicking, and market confidence in citi’s mgmt is already near zero, as evidenced by the firm’s less than zero adjusted market value, I’d say that ship has sailed. In this case, if panic is a legitimate fear than the Feds can always announce ahead of time that in the event of a liquidation scenario it will step in to bail out depositors and ensure that critical counterparty obligations will be honored, instead of just prematurely shelling out taxpayer funds.
This NYT front page article says that Citi management sucked.
Both rich and poor agree, Hanky is the worst Secretary of the Treasury ever. But the Goldman Sachs financial meltdown is going global. They are rioting in Iceland.
UBS, the Swiss financial giant employs Phil Gramm, McCains chief economuic advisor. But the Swiss have lost a lot of their UBS investments including sausages and they are angry also.
Things are getting serious for the international financial wheeler dealers. Perhaps some false flag operations could be a useful distraction.
Banks can’t file bankruptcy. The holding company apart from the bank has trillions of dollars in outstanding CDSs. No one can predict the outcome of a failure or a bankruptcy.
Wasn’t it CITI Bank that made a deal with former Gov. Janklow (current ex-con) of SD to eliminate Usury laws and then brought suit under interstate commerce laws eliminating all state usury laws?
From the article I cite above:
holdcos can file bankrupcy, and I actually think that with adequate signaling about public support for counterparty obligations, citi’s should be allowed to fail.
Shitty bank goes blub blub blub oh well they did it to themselves without help. Compulsive gambling…the house got the fees for the trades and promised etremely unusually high returns. The con always works the greed factor remember the late great Paul Newman’s “The Sting” or “Wall Street” may he rest in peace and his family be well. The sucker never gets an even break and those boiler rooms were crankin baby huge volumes of magic paper.
Methinks thou doth protest too much…to be religious.
Okay, okay, that made me laugh. Especially when I noticed it was written by ratfood. LOL
First, the bailout is to protect the assets (of perhaps people like you).
Second, it’s not so clear laws were broken since they got Republicans to change the law ahead of time.
Third, it’s quite likely there are still securities laws which have been violated. For example, since when should banks issue or buy a credit default swap? It’s not an investment and it’s not banking, so why is it legal? Well, it might not have been.
If you are going to bust up Citibank they all should be busted up: JPMorgan, Bank of America, and the new players Morgan Stanley and Goldman Sachs.
That said, it was pretty outrageous that the SEC let another bank get shorted into oblivion. It is still very much Rick’s Cafe. No gambling goes on there, no, and by the way here are your winnings
Forgot to add in Wells Fargo to the list of bustees.
Citigroup Saw No Red Flags Even as It Made Bolder Bets; NYT; nov.23, 2008
http://tinyurl.com/5t9259
When he was Treasury secretary during the Clinton administration, Mr. 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. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
See also,
Robert Rubin: What Meltdown; CNN Money; Jan. 31, 2008
In a talk on Wednesday, the Citigroup director said the current financial upheaval is just cyclical. And none of the blame that there was to assign went to Wall Street.
http://tinyurl.com/6ara42
Where Was The Wise Man [Rubin]?; NYT; April 27, 2008
http://tinyurl.com/4p7v58
Oh, the humanity! And Robert “Bob” Rubin an Obama financial adviser and all. I bet he is.
I don’t primarily blame shorts.
And yeah, if it was up to me, I’d break them all up.
great links. thanks.
So, the same crew of neoliberal vultures who looted the former USSR have come home to roost, and guess what? These goddamn pirates have never been our pirates, as we assumed (were told?), but are simply pirates, and they are simply doing what pirates do: They loot, and then sail away with the booty. So long, suckers!
Vast wealth, however ill-gotten, can usually find a safe harbor somewhere (c.f. Robert Vesco, et al.) One possibility that Barack Obama might consider for beginning to expiate some of the crimes and outrages committed in the name of the USA these eight (sixteen? twenty?) long years past would be to mount and international law-enforcement effort to prevent some of the worst of these buccaneers from retiring in splendor behind gated walls in Abu Dhabi, or somewhere else where money talks.
To say that it’s not very likely as long as Bob Rubin, Larry Summers and their ilk occupy high positions in his putative Administration, is a no-brainer. But I keep hoping that he is a good enough man to be open to a conversion experience, as the catastrophic results of the advice and actions of these men become plain for all to see, and the bodies that they had dumped overboard come bobbing to the surface, even while they are still hanging around the scene(s) of the crimes(s)!
You may say, I’m a dreamer,
But I’m not the only one…
MarkH @ 46
When Greenspan was pronouncing matters as being healthfully “exuberant” and claiming the markets were “intrinsically sound” clearly Wall St. and Big Banking were off and running. The bloom is off now and those who were reckless,careless or just plain criminal ought not walk away easily.
It is painfully evident now that ‘protecting assets’ got run over some time back by the gamers and players who were more interested in the multiples for skim offs and esoteric pick pocketing.
Anyone walking into the corner gas station and holding it up for a couple hundred dollars and getting caught doing so would easily face stiffer consequences than any of these Wall Street cats or Big Banking rats have seen thus far.
Considering no one on Wall Street or in Big Banking suggested and followed up on sharing the winnings with the American taxpayers over these past 10 years it is supremely arrogant now to take taxpayer billions(trillions?) and demonstrate so little contrition or acts of resignation while doing so.
here we go again did we hear whether they have a corporate jet i am sure they do did we hear who family has money invested we are like lambs going to slaughter and they would rather have foreign car maker then american car makers i think people need to think how this country has been, being sold out to foreign countries for the last eight probably longer but at least eight need i say the word think about it
and just think who do we have running around criticizing everyone else about the economy none other then his scrawny wife
I sometimes wonder if they all aren’t making it up to fleece us some more?
Look at this one: http://www.nytimes.com/2008/11…..4mon1.html The feeding frenzy isn’t over yet. Get ya Payday loans here! Payday loans!
I for one would be interested in Citigroup’s record of paying taxes –those taxes now rescuing it. Not good, not even honest, is a bet we’d certainly win.
I’d take some comfort in the fact that the government will own part of these banks for a while if they had any interest in trying to manage them properly. Unfortunately, it’s starting to look like the government will punt on that part of it, too. Maybe the incoming administration will take a more positive role. They already seem willing to do more than Obama talked about during the campaign.
Maybe it’s a good thing that the President-elect can’t buy himself a ranch in Paraguay should things go south here?