The federal government is in talks to beef up its ownership stake in Citigroup to as much as 40 percent of the company’s common stock, the Wall Street Journal reported Sunday—just days after the Obama administration said it didn’t want to nationalise America’s largest banks.
Citigroup proposed the move to regulators, the Journal reported, and a Treasury Department spokesman signaled late Sunday that the government is open to the idea, even as he refused to discuss Citi directly.
The Big Bad N word
Treasury spokesman Isaac Baker told POLITICO: “… we are open to considering a request to [convert preferred stock to common shares] if the institution and its regulator believe it would promote the long term stability of that institution, and if we believe it’s in the best interest of long term stability of our economy and financial system.”
That represents a dramatic change of tone from White House Press Secretary Robert Gibbs on Friday. “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” Gibbs said at the time. But throughout the week, stock market investors didn’t believe the denials, and continued furiously selling bank stocks out of fear that a government takeover would wipe out shareholder value. By the close of trading on Friday, Citigroup, one of the most beleaguered banks, traded at just $1.95 per share.
In some ways, it looked like the market’s worries about nationalization could have become a self-fulfilling prophecy. The collapse of Citi’s stock price makes it much more difficult for the bank to conduct business on Monday, and could spark a broad loss of confidence in the company’s viability. It could also impact the stock price and future viability of other banks.
( Ack:Eamon Javers, Carrie Budoff Brown – Mon, Feb 23, Politico)
Nationalisation has its backers also. Nobel prize-winning economist and New York Times columnist Paul Krugman said Sunday that bank nationalisation was “as American as apple pie” during a round-table discussion on “This Week” with George Stephanopoulos. The economist said it seems that the government has no other choice than to temporarily intervene in order to clean up banks with toxic assets and change management.
Professor Nouriel Roubini a.k.a. “Dr. Doom,” also on the round table, argued that banks ought to be nationalised.In this connection let me cite another item:
* Why This Recession Seems Worse Than ’70s and ’80s
“The current situation has nothing in common with the Great Depression,” says economist Steve Hanke of the Cato Institute and Johns Hopkins University. “The sooner they [in Washington] stop spinning the bad news story and say nothing, the sooner we’ll be more confident.”
“I don’t remember a president talking down the economy as much as President Obama,” says economist Chris Rupkey of Bank of Tokyo-Mitsubishi. “The economy is very psychological. There’s a herd instinct.”
That herd instinct kicked into overdrive after the sudden collapse of Lehman Brothers, when many say the economy fell off a cliff and a classical cyclical downturn merged with a nasty one-of-kind credit crunch. So yes, economists agree things are bad, but they need to be put into perspective.(nbc Philadelphia/news Alberto Bozzo-13 Feb,)
Yes. Try to put the consumer confidence in perspective before trying to wish away bad news by comparing with the Great Depression and recession of 70s and 80s. The world was not a global village when the Great Depression hit Americans; nor was its economy as tied into global economy as now. Each crisis is unique in its own way.
Some of them were from the eighties making lots and lots of money — for themselves, of course, but also for their investors. There were those who allowed such free-for-all even if that was a slippery slope because they were afraid of government regulation more than equity and fair play. What did keeping government from interfering entail? In their eyes pushing less advantageous to the wall was less of a moral issue than letting true American spirit of ingenuity full scope. These are the ones who cry hoarse at the mention of nationalization. In their mindset they equate with socialism. To them freeing the marketplace’s animal spirits for making money by financiers in whichever way they could, even though it bordered on criminal behavior didn’t seem to matter.
Note: WASHINGTON – Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.
“If effective regulatory reform legislation … is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” the senators wrote in a letter that proved prescient.
Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side…”
(Pete Yost-Associated Press 20 Oct, 2008)