Monday, March 2, 2009

New Citibank model may be the one moving forward for saving these financial industries

There is no doubt or question that this country is in uncharted waters.

Many blame the housing-mortgage mess for derailing this country financially. This is true in some part, but the players in the game are the ones to really be blamed. First, the government for not installing or in many cases removing regulations for the mortgage industry. The banks for using any and all loop holes in getting consumers mortgages, AT ANY COST OR RISK. The consumer for knowingly over-extending themselves with a mortgage or mortgages that they knew they could not afford. This vicious circle during the boom era made in the billions of money for this circle and they became drunk with greed. Now the grim reaper is upon us and it is pay time, only the cupboard is bare with time running out.

AIG now needs more infusion to the tune of 30B. This is on top of the record 150B that the government has given this insurance giant, most under the Bush Administration.

In November, the U.S. government restructured previous loans provided to AIG, giving the company about $150 billion in total as part of a rescue package to help the insurer remain in business amid the worsening credit crisis. That package replaced earlier loans, including the original $85 billion lent in September, after it became apparent the insurer needed more funds.

Problems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.

As we see from above, AIG is not alone in the mortgage mess which has taken them financially; most of the financial industries with their hands out to us come from the same predicament. Their stock shares closed at .42 on Friday, which was worth $49.50 a year ago.

Now since we, the taxpayers have infused Citigroup with more money the government is playing a high wire act in hopes that this is the model going forward that works for the other financial industries lining up to receive government bailout.
It's the third time in five months the government has announced a major bailout for Citi, which has been struggling under the weight of losses tied to bad bets on mortgages, and it may not be the last. The government will swap the $25 billion in preferred stock from its earlier bailout money into common stock. This will boost the taxpayers' stake in Citi from 8 percent to 36 percent.

Similar rescue plans could be used at other ailing banks like Bank of America Corp. and Wells Fargo & Co. But analysts are skeptical of how effective they would be in the face of a weakened economy that will further depress the value of loans on the banks' books.

"Given how bad the economy is, there's no way on earth they won't see more of those loans go bad," said Dean Baker, co-director for the Center for Economic Policy and Research, a liberal think tank.

Douglas Elliott, a fellow at the Brookings Institution, said the government may take larger stakes in other troubled banks after regulators evaluate their balance sheets in coming weeks. Citigroup was in worse shape than its peers, he said, so the government will likely take smaller stakes in other banks.

36% is what we, the taxpayers own in Citigroup. It means that we are probably the largest shareholder in this bank.
Baker, of the Center for Economic Policy and Research, said the government's efforts to avoid a takeover amount to "a further handout to Citigroup."

"We really should own it outright," he said, given that taxpayers have provided the company $45 billion in assistance, several times its market value.

This is a high wire act saving the financial market, it is. I cannot sit back and say let the market correct itself. Citigroup, Bank of American and Wells Fargo are intertwined with toxic assets that are unmovable at this point. My feeling is to let these banks go down, but we are living in real time and if this happens it will have a roller ball effect not just in this country but worldwide. And for many with jobs, may not have them any longer since most companies and industries in this country works on credit.

I hate giving these banks a penny. Many of these lending institutions are biggest the snobs out there. Their only bottom line is and always has been making money, at any cost. Well, these guys and some gals were supposed to be the smartest of the smart and here we are with their companies run to ground due to greed. These companies did not see the bigger picture that their recklessness could not only cause havoc within their own bank but a counter effect worldwide. This is like the Bernie Madoff scandal. Madoff had his core group of investors but to keep the scam going he had to go broader, bring others into the group, until eventually it blew up in his face because he did not have enough money to cover everyone he owed.

This is the position of the banks.

I really hope this works, but my eye is crooked with skepticism. In real time, we can not save all these banks, but the major players must be saved to stabilize the financial market.

What a tangle web all this mess has weaved.


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