Steve G.

Citigroup then and now

In Libertarian on February 23, 2009 at 11:09 am

I find it odd that today’s headlines include information on the nationalization of Citigroup. Here’s an excerpt from the linked article:

If the government took a large common equity stake, even if it lacked voting control, the move could be the equivalent of a nationalization. Citigroup shares fell below $2 on Friday as investors feared that soaring losses would result in nationalization, wiping out shareholder equity.

Taxpayers could end up owning as much as 40 percent of New York-based Citigroup’s common stock, though executives at the third-largest U.S. bank by assets hope to limit the stake to about 25 percent, The Wall Street Journal said on Monday, citing people familiar with the situation.

You might ask why I think it odd; after all, this nationalization thing must be sounding pretty ‘normal’ by now. I find it odd because Citigroup knows this won’t work.

I blogged in November about an internal Citigroup message that said:

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.
This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.
“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.
“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

I guess that with trillions of dollars being spread around Citigroup couldn’t resist getting in on the deal. While Citigroup is certainly wrong for taking this money while knowing the outcome will be failure, I’d like to know when the public is going to wake up to the realization that the government is spending like a drunken, daddy’s credit card bankrolled frat boy in a topless bar.

  1. Shouldn’t the government taking equity actually protect against nationalization which would wipe out the shareholders? Maybe the plan is to drive out all but the most stubborn shareholders and someday, when the bank becomes profitable again, the government can cash in big time on its 99% share.

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