People can go hungry, die in the streets, have no health care, and be thrown out of their homes by crooked lenders, and the Bush Administration sees no reason to intervene. It is "the Free Market" or "we're too broke" or even, as in one memorable speech everyone would like to forget, "We can't allow the government to insure children because that would endanger the health insurance companies' profits." But when a bank that has been buying acres of suspect mortgage loans and handing out $3000 pre-approved credit lines to dogs and 10-year-old boys finds itself in hot water, suddenly all Mr Bush's vaunted "Free Market/we can't afford it/it's socialism" is history and the Treasury doors are flung open.
Apparently, as a "compassionate conservative" Mr Bush's compassion only becomes energized when the rich start to whine. The rest of us would do him a favor if we would just go someplace invisible and die.
The panic has set in and the prop-up fever that haunts Washington hasn't yet gotten around to being concerned with ordinary folk. Citibank, however, is on its second trip to its Rich Uncle with its hand out, whining about how it couldn't possible have forseen that its unethical if not outright illegal behavior could possibly have any consequences.
While Citigroup’s second multibillion-dollar rescue from Washington hit Wall Street like a shot of adrenaline on Monday, many analysts worried that the jolt would soon wear off. Citigroup has been stabilized, but the outlook for the financial industry as a whole is bleak.
With the red ink deepening, other banks may eventually turn to the government to soak up some of their losses. Taxpayers could end up guaranteeing hundreds of billions of dollars of banks’ toxic assets. Indeed, Treasury Secretary Henry M. Paulson Jr. is expected to announce a new plan on Tuesday to bolster the consumer-finance market.
“When all else fails, government does come in,” said David A. Moss, a public policy professor at Harvard Business School.
Even NYT Business writer Eric Dash understands that this is a very bad precedent to be setting for greedy Wall Street.
In the short term, the latest effort to steady Citigroup has removed the risk that a sudden failure of the giant bank would send losses cascading through the financial industry.
But longer term, the new bailout could haunt regulators and taxpayers. The move ultimately may encourage banks to take more risks in the belief that the government will step in if they run into trouble.
With a recession looming, if not here already, banks big and small are bracing for more loans to sour, particularly those related to commercial real estate, autos and credit cards. Many are making fewer loans, even though the industry has received nearly $300 billion from the government.
(emphasis added)
Yes, the "industry" has but nearly all of it went to maja playas with heavy Bushian/GOP connections who have earmarked the majority of the money for expansion, executive bonuses, and corporate vacations, not lending. Which is why, Eric, the bail-out didn't loosen credit: precious little of it was used for that in the first place. The bankers have other things on their minds, like finding new scams and a new batch of suckers to skin with them.
Robert Reich notes in his blog that it's a helluva deal for them, not so good for everyone else.
This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.
Meanwhile, more than a million workers in the automobile industry, along with six million homeowners in danger of losing their homes, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.
Well, some of us do, Bob. But there isn't much we can do about it because it's a done deal - done at night and dealt between the playas with no input from anyone who will be paying the bill for it.
Would you like to know a little bit about the company you just saved? Hold your nose....
It owes much of its success -- as well as missteps -- to its emphasis on size and innovation and a penchant for going around or getting rid of regulations in its way.
If there was a business that was earning money for competitors, be it making loans to developing countries or selling stocks to individual investors, Citi wanted to be bigger and better than it. That attitude led it to pioneer ATMs and to become a major player in the credit card business. It also landed Citibank in the midst of every major financial crisis over the past century, including the stock market crash of 1929, the Latin American debt crisis of the 1980s and the current financial meltdown.
"A banker would have admired it in the 1990s as forward-looking. It used to have a reputation as an aggressive bank looking for new profit centers. That changed to more reckless," said Charles R. Geisst, the author of a history of Wall Street. Today, it's "an institution that is no longer in control of its own destiny."
Citi traces its roots to City Bank of New York, a merchant bank chartered in 1812. It later changed its name to National City Bank and by 1894 was the largest bank in the country.
During the bull market of the 1920s, National City became a leading seller of securities to individual investors, even though state banking laws prohibited commercial banks from getting into the investment banking business.
***
When the stock market crash of 1929 hit, National City's stock value plummeted, and the federal government rescued it with a capital infusion of tens of millions of dollars, said Richard Sylla, an economic and financial historian at New York University.
Lawmakers blamed Mitchell and National City's aggressive sales techniques for the stock bubble and resulting crash. In February 1933, [National City Chairman Charles] Mitchell was summoned to Washington to appear before the Senate Committee on Banking and Currency, which was investigating the causes of the crash. There he was grilled by Ferdinand Pecora, a former prosecutor and chief counsel for the committee. Under oath, Mitchell admitted to evading taxes and unloading worthless bonds on unsuspecting investors. He was ousted from National City, and Congress passed the Glass-Steagall Act, which among other things prohibited commercial banks from getting into the insurance business.
If it all sounds achingly familiar, there's a good reason for that. So that's why they should have known what would happen! (Smacks forehead in self-administered dope slap.)
They knew what would happen, alright. They knew they would make fortunes while bringing their bank to the edge of ruin and that they'd be able to count on a Federal bail-out to provide even more $$$ for vacation homes and a new private jet, perhaps, once they'd skimmed as much as they could from their sucker investors.
No wonder Detroit expects to walk away with a chunk of our money.
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