Josh has an Ignorant Question
Framing the question this way is precisely the issue.
http://www.talkingpointsmemo.com/archives/245658.php
We are ingnorant of so much of the internal workings of what has happened that we are ambivalent of how to proceed. And I mean we in a very involved sense.
Citibank and others need to come before congress and be required to give the nation a complete rundown of their balance sheet so we can get a handle on this. We need to know what pieces of their portfolios are the ones causing the heartburn to precisely identify what went wrong. The necessity of fixing this is obvious but we need also to address the causes and make sure congress follows up with appropriate regulatory action to prevent a reoccurrence. Fixing something that is broken implies you know precisely why it broke. The why question may be troublesome for some people but if management in the banking sector messed up we need to know the why and how. The country rightly has to have these answers before and as a condition of forking over trillions of dollars.
Josh questions how is the public interest served by maintaining shareholder equity. I suspect it is served because there are an awful lot of institutional investors managing the 401Ks and IRAs of citizens or just plain citizens holding Citibank stock.
Josh: "letting Lehmann fail in the way it did, for instance, was a category error"
That may be some kind of consensus, but I don't see the basis for it.
I do agree that Paulson's fascist behavior is completely unacceptable.
There is a Saudi interest in keeping shareholder equity alive, 4% older, and a recent 1% addition. I wonder how the $10.61 warrant price was figured out over the weekend.
November 24, 2008 8:48 PM | Reply | Permalink
You have to wonder about the Saudi investment. Maybe someone in our government asked the Saudi's to make a contribution of sorts. I saw that Saudi buy when it happened and thought right away about who was involved in making it happen. The Saudis were already in very deep so it isn't that big a deal. As I recall the Saudis bought that 4% many weeks back when the share price was still around $30. That was around the same time and at the same price I sold my C shares. One of the few times I ever got out before the damage got too severe. Not that it makes a difference given everything else has gone south.
The Lehman consensus thing was an early signal that government wasn't in the mood to fork over the $ to cover the bad bets of the banks. The banks all started dirtying their shorts after that and it made government reconsider.
I honestly don't think the banks are that bad off. They could well have managed this. They wouldn't be able to report a profit for a fair bit and would have had to eat their own risky loans. That is what should have occurred. Instead taxpayers are being asked to cover all their bad debt. Part of the Citi deal is they can't declare a profit of more than one cent for three years without government say so. It looks better for them having government dictate those terms than doing it themselves.
I don't see any fundamental difference between the banks and Detroit. In both cases it is little more than management having made bad choices about how to conduct their businesses. Only the details are different. The common thread is they both made choices about their revenue streams and profits. Detroit bet on high margin vehicles and Wall Street bet oh high risk investments. Both made the same choices with the same primary incentive driving the choices.
November 25, 2008 2:05 AM | Reply | Permalink