StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Bailout III: Citigroup About To Be Nationalized

23 Nov 2008
Posted by Pete Davis

This horror movie keeps getting worse.  This morning's New York Times details how Citigroup, under CEO Charles O. Prince III and Robert E. Rubin, took on too much risk in search for every growing profits, only to find the whole enterprise crashing down around them when those risks proved excessive.

What's ahead?  My Washington banking sources expect a backdoor nationalization of Citigroup, possibly before 6 p.m. today, when Asian financial markets are poised to hammer Citi stock from $4 to far less 90 minutes from now.  That after Citi fell from a 52-week high of $35 in early December, 2007, to its Friday close of $4.

Nationalization of Citi would probably include the injection of billions of dollars more from the Troubled Asset Relief Program (TARP), on top of the $25 b. Citi has already received.  Citi is too big to fail.  Over half of its deposit come from foreign investors.  Thursday, Saudi Prince Alwaleed bin Talal upped his stake in Citi from 4% to 5% in an effort to stave off a bank run.  Monday, Citi announced more layoffs, bringing the total to 75,000 out of a total workforce of 375,000.  Unfortunately, this probably won't be enough.

Taxpayers are going foot the bill in the end.  The trouble is finding the end after bailing out Bear Stearns, Fannie Mae, Freddie Mac, AIG, all major banks, and now Citi for a second time.  That doesn't count bridge loans early next year, if its not too late, for GM, Ford, and Chrysler.  It also doesn't count the Federal Reserve facilities to keep the commerical paper market afloat and another one that's coming to keep the asset backed securites market (credit cards, student loans, auto loans, etc.).  The Fed's balance sheet has already doubled to $1.3 trillion, and it looks like its going further.

If another stimulus bill early next year and a new administration can inspire confidence, hopefully we can emerge from a severe recession late next year with enough economic power in tact to begin chipping away at the the $2 trillion of additional debt the federal government will have accumulated by then.

banks fail

during financial crises. This is why we have deposit insurance.

The Robert Rubin We Know All Too Well

Let us recall that it was Mr. Rubin who undid the essential protections that the intelligent minds of the depression era enacted to protect us. Yes he had help from Summers and the rest, but it was he who was insrumental in setting in motion the train of events that was to lead to our current distress. Later in the coming week, his bank, the largest in the world, is going to fail (or be nationalized as you suspect). Someone will pick up a few of the pieces, but it is Mr. Rubin, and those who admire him, that deserve the shame for the millions who will suffer. You are right to condemn him to the ignomy he so richly deserves.

Someone should do Mr. Obama a favor and explain to him that many he supposes his friends are anything but.

Yes, I'm another sucker

Back in the late 90's I lost my job and had a 4,000.00 balance on a citi credit card which I defaulted on. It's been long since paid, but for a year their lawyers made my life hell. So there are representatives go... I defaulted and got screwed, they defaulted and my tax dollars keep them in business.

Wake up people, these are our tax dollars!

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