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November 25, 2008

What It Means When They Move Their Lips

Friedrich von Blowhard writes:

Dear Blowhards,

When The Powers That Be bailed out Citibank (for the second, but certainly not the last time), the Treasury, the Federal Reserve and the FDIC issued a joint statement, which you can read here. Apparently sensitive to criticism that they are just throwing money at Wall Street with no real plan except to keep the plutocrats in their limousines, the combined agencies inserted a paragraph at the end of their statement described their guiding principles in orchestrating such assistance to failing financial businesses.

However, in the course of the day, some additional information came out from the Wall Street Journal (which I relay to you courtesy of Mish Shedlock at Mish’s Global Economic Trend Analysis - you can read it here.) This story seems to be quite helpful in interpreting the nuances of our new policy principles.

So here are the four guiding principles, counterpointed with some excerpts from the WSJ story and some helpful comments from me, to help you interpret what officialdom means when they write high-sounding prose.

Joint Agency Guiding Principle: We will work to support a healthy resumption of credit flows to households and businesses.

WSJ: [Not included in the government’s bailout] are Citigroup's giant credit-card business, where defaults have been rapidly piling up, and its overseas lending operations, which also are showing signs of stress. While the government deal bolsters Citigroup's capital ratios, "we are concerned that losses may eventually exceed the government's backstop," said Standard & Poor's equity analyst Stuart Plesser.

My comment: Who believes with those losses piling up that Citi will be doing a lot of new lending anytime soon? Anyone? Anyone? Bueller? And who exactly benefits from such a bailout of a not-likely-to-be-lending-in-the-foreseeable-future financial institution?

Joint Agency Guiding Principle: We will exercise prudent stewardship of taxpayer resources.

WSJ: In exchange for covering hundreds of billions of dollars in potential losses, Citigroup is issuing the government a total of $27 billion in preferred shares, in which the government will receive regular dividends …

My comment: What could be more prudent stewardship than getting $27 billion in preferred shares in exchange for hundreds of billions of future losses? Especially since those preferred shares are in a company which appears to be, um, bankrupt?

WSJ: On Friday [November 21, 2008], Citigroup Vice Chairman Lewis Kaden and investment banker Edward Kelly spoke by phone with New York Fed President Timothy Geithner to discuss the worsening situation. Inside the government it was far from clear that action was needed. Citigroup's stock price was tumbling, but there was no sense the company was in danger of failing. But over the weekend, as they pored through Citigroup's books, it became clear to top officials that the company needed government help.

My comment: It’s so reassuring to know that our ultra-prudent stewards ( including our newly appointed Treasury Secretary Geithner) who keep regulatory personnel stationed permanently inside Citi, finally took a personal look around as a result of a phone call from the panicky proprietors. And that within hours they found themselves shocked, simply shocked, to discover that gambling had been going on in this establishment.

Joint Agency Guiding Principle: We will carefully circumscribe the involvement of government in the financial sector.

WSJ: If the U.S. were to take another equity stake, Treasury Secretary Henry Paulson wanted it to be small, since otherwise the government would end up owning Citigroup. The officials worried that appearing to nationalize the company would further roil markets.

My comment: I mean, if we started nationalizing banks, we could end up nationalizing Goldman Sachs! And that will NEVER happen on Secretary Paulson’s watch. No matter how many trillions of taxpayer dollars that takes.

Joint Agency Guiding Principle: We will bolster the efforts of financial institutions to attract private capital.

WSJ: FDIC Chairman Sheila Bair harbored reservations about a bailout because it exposure her agency to big losses. She wanted government officials to consider an arrangement that would be more punitive to Citigroup shareholders…Around 6 p.m. on Sunday, Mr. Paulson called Ms. Bair to talk to her privately. He told her helping Citigroup was important and that if she couldn't play a meaningful role, the Fed and Treasury could do it without her.

My comment: Jeeze, Sheila, get with the program here. Remember the mantra: “privatize the profits, socialize the losses.” Can’t have the investors in Citibank equity or debt suffering the consequences of their own mistakes, now can we? I mean, hurting innocent bystanders like those might really queer Wall Street’s game for a really long time!

So what does it mean when our officials move their lips? It means they’re lying.



P.S. You might want to read Mish’s whole post on Citigroup Bailout Raises Viability Questions For Entire Banking System.” Or watch an interview, which you can see here, with Hugh Hendry, chief investment officer at hedge fund Eclectica Asset Management. In it he predicts that all U.S. financial institutions will be nationalized within a year. Of course, our noble public servants have lots better information on the safety and soundness of U.S. financial institutions than we mere taxpayers do, and I’m sure they have excellent reasons for refusing to share that information with us. Or, just possibly, they are keeping everything secret in order to waste several more years and trillions of taxpayer dollars before admitting just how bad the situation is. Japan’s Lost Decade, here we come.

posted by Friedrich at November 25, 2008


Sheila Bair is the only person who is coming out of this disaster looking like a responsible public servant. I was really disappointed that Obama did not nominate her for Treasury sec. Disappointed, but not surprised.

Posted by: MQ on November 25, 2008 2:25 PM

Does anyone else believe that Henry Paulson is the most dangerous man in America, or is it just that my aluminum foil helmet too tight?

Posted by: Bill on November 25, 2008 4:53 PM

Why not just rename Citigroup as "Rick's Café Américain" and be done with it?

Posted by: dearieme on November 25, 2008 6:18 PM

This is the British version of the bail-out:-

"The Mayor of London launched an extraordinary personal attack on Gordon Brown's handling of the financial crisis today.

Boris Johnson accused the Prime Minister of behaving like a drunk taking a "frantic and unprecedented gamble" with the economy.

"He is like some sherry-crazed old dowager who has lost the family silver at roulette, and who now decides to double up by betting the house as well," the Mayor said."

Posted by: dearieme on November 25, 2008 6:44 PM

Vaguely related: Five Tech Products You Can Do Without in a Recession.

Posted by: Michael Blowhard on November 25, 2008 7:48 PM

Saw a report on the news that Citibank has a huge middle-eastern (read Saudi Arabian) investorship, so that means as we give money to Citibank, we're dumping more money into their pockets, too. Last time I heard, all middle-eastern Arabian nations were running with huge surpluses.

Even if that weren't the case, Citibank is international. Why do we have to give our money to hoist it up?

And does anyone else think it's weird that gas prices went so high, and now they're back to almost normal? Did the oil industry foresee this meltdown and line their pockets first? Notice you don't have any oil companies with their hands out.

Posted by: Yahmdallah on November 26, 2008 10:59 AM

One interesting (bemusing, enraging) thing about these bailouts by American taxpayers is that few seem to notice, or care,that the bailees are not, as a matter of fact, American companies - they are global corporations, and certainly don't see themselves as having any obligations to the long-term welfare of this country. E.g. Citi is hiring and investing elsewhere, while laying off U.S. employees and siphoning monstrous amounts of money out of the pockets of un- and underemployed Americans; GM is cap-in-hand for the same while pouring billions into China, India, Brazil. Indeed, I came across a Caracas paper the other day claiming they were planning to to invest billions in "bailout money" in their Brazil operations. A bit premature, but it wouldn't surprise me if that was the plan. At any rate, I'm puzzled why people aren't a bit more skeptical of the "must bailout or we all lose our jobs", when none of these companies (and that includes the Big 3) have demonstrated any commitment to American workers. Why would anyone believe that even a successful bailout would turn around the trend of ditching U.S. workers? You see anything in the fine print about this sort of thing?

Now, these corporations are free to offshore jobs and invest their own billions all over the world if that's how they can or want to make a profit. They are, after all, multinationals. Meaning they ought to be able to look out for themselves in the big bad world, no? You know, the way workers are insulted about their worthlessness and told to suck it up, when the globalization juggernaut kicks them up side the head? Could somebody explain to me why we're assenting to subsidizing our own increasing unemployment and de-industrialization? Funny how these MNCs manage to find their inner patriot, though, when feeding time at the trough rolls 'round.

Posted by: Moira Breen on November 26, 2008 11:22 AM

dude, i composed one and then another reply to your post, and then went and wrote a comprehensive reply on my blog..


Posted by: Ramesh on November 26, 2008 1:01 PM

Lemme see....................300 for Citigroup (Rubin's screw-up, now in the Obama admin),

700 for Wall Street (basically Goldman Sachs after all is said and done)

But not 25 for The Big Three, employer and insurer of many many many more people, who actually make --something--.

700 + 300 = 1000

1000 > 25

25 is one FORTIETH of 1000

Out of touch? Uh huh....

Posted by: miles on November 26, 2008 2:37 PM

I never, ever in a bazillion years thought I would be writing this, but here goes:

Dear Marxists, turns out you were right. All that stuff about our nation, the American way and constitutional government WAS just mystical clap-trap to keep us from noticing that the government is nothing more than the executive committee of the financier class.

I humbly apologize for all the years I've spent making fun of you.

I feel like an idiot. And I'm sure there are many patriots out there who feel as I do.

I honestly don't know what's worse: that these obvious criminals can loot our nation in broad daylight and pat themselves on the back for doing so or that they're doing this and the American people haven't even noticed or done anything.

Lost Decade, hell. We're in for worse than that. Either we end up in a completely new country (like Argentina meets Brazil) or these guys end up swinging from lampposts.

Posted by: Jourdan on November 26, 2008 2:47 PM

Easy there, Jourdan. There's a social side to Marxism you are not going to like one damned bit.

Posted by: Charlton Griffin on November 27, 2008 10:47 AM

I kind of keep hoping that greed will out, in the sense that other, more greedy people, will rise up and replace these cheap grifters.

As far as the questions about global and whose holding the cash, there are some recent wrinkles in offshore and some expected dust-ups in how continental and other cash can/is comingled so we'll see.

Posted by: j.c. on November 29, 2008 12:14 AM

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