Citigroup Welfare
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Citigroup is again taking billions of your money. This week’s new bailout
of Citigroup is $20 billion. The company had already received $25 billion. That’s now $45 BILLION to “help” Citigroup.
Citigroup’s website says: “Citi is today’s pre-eminent financial services
company, with some 200 million customer accounts in more than 100
countries.” Think about it. Citigroup owns banks and operations in 100
foreign countries. If Citigroup needs money, let Citigroup start selling one company in each of those 100 countries. That’s the first way that a global giant can raise money.
Second, a year ago the annual report said Citigroup raised $30 billion in
short order as long-term investors provided new financing. At some price, capital is available to Citigroup even today. Stocks and bond sales could raise the money.
So what’s going on? Why is the U.S. Congress spending YOUR money to rush to “save” this bank? Why wouldn’t Secretary Paulson simply tell Citigroup that there is no bailout until Citigroup takes one of the two steps above. To repeat: 1) Sell valuable assets, and/or 2) issue stocks and bonds at the market price.
You might object that “it’s more complicated” or that “there’s an emergency.” However, every time a share of Citigroup is sold on the
Exchange, that means there is a buyer. That is true. You just can’t
have a seller without a buyer, right?
James Surowiecki in the New Yorker discusses the current stock price
of Citigroup. He just wrote, “In other words, at the moment, you could buy all of Citigroup for only a little more than what it clears in free cash
every year. . . . And if I’m able to buy the whole company for two times
free cash, does it really matter if I have to write down the value of some of its assets, since I’m essentially getting them for free.” I say
that the situation is such that Treasury Secretary Paulson just might
want to buy all of Citigroup rather than handing out corporate welfare.
That’s how nutty this bailout has become. Absolutely NO discussion
is occurring that says the capital marketplace of capitalism can function.
Like Citigroup selling its companies, GM can sell Chevrolet. Ford can
sell Mercury. And that’s the way capitalism works.
References:
The New Yorker, November 21, 2008:
The Citigroup Perplex by James Surowiecki.
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Tags: Citigroup, GM, Paulson, Surowiecki
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Of course when you add in ALL liabilities such as the UAW contracts that will hamper GM well into this century (with health cost of the yet unborn). GM’s “net” worth is MINUS $6.5 Billion. Oh my; I just can’t wait to pick up some of this common at a fire sale price.
The writer says, “…let Citigroup start selling one company in each of those 100 countries,” but who would buy a failing enterprise? Anybody could start their own company and have a much better chance for success than he would by buying a failing one. That is why Citibank can’t sell any of its operations to raise enough capital to continue to be a viable business.
To get to the bottom line of the Citibank issue, let’s examine the nature of the banking industry. There is private enterprise and there is public enterprise, and then there is banking. The banking industry is dependent upon leveraged capital. Only a fraction of its depositors’ funds are available at any one time for withdrawal; therefore, it requires a safety net against liability runs. It would otherwise be impossible for them to operate.
Since few individually have neither the means nor the incentive to pay for the safety net, we collectively tax ourselves to provide one. This arrangement is not only satisfactory to the public, it is also necessary for a successful economy. However, the public’s satisfaction disappears when the time comes that the banking industry requires the use of the safety net, but the necessity remains if the economy is to successfully continue.
We have only one choice on the bailout issue if we want our economy to recover and prosper again, and that is to roll out the safety net. While we may not think that the plan that the government has begun to carry out is the right one (only time will tell), there should be no question that the safety net is absolutely necessary for the benefit of our nation.
The alternative is to have no banking system and live in poverty in a cash society like so many do in third world countries. I find it hard to believe that any American would prefer that.
So what are we gaining out of this you ask? What is an American Voter gaining out of it? Unemployement? No Loans, High Charging Credit cards and highly respected institutions going thumbs down? Have we put our heart and soul into this country’s institutions for this?