Perhaps no other institution still standing in the Global Crisis of 2008 deserves to fail more than Citigroup. Their reach extends to 100 countries with assets close to $3 Trillion. It was Citigroup that provided the resources to pass the Gramm-Leach-Bliley Act that repealed Glass-Steagall in 1999. It was after that act, that Citigroup emerged as the largest financial services institution in the world.
That they took an injunction to stop Wells Fargo from their acquisition of Wachovia is at the moral heart of the 2008 Crisis. I mean, how big is big enough? Can they possibly comprehend the magnitude of the monster they have created. Currently, Citigroup is the largest issuer of credit cards in the world, with 40% of the market. They are also the largest lender of consumer credit, where people pay huge interest for a refrigerator when they are broke and the icecream is melting. They are also hold most of the student loans in the US.
This crisis is largely a spectator sport for Joe Six-Pack and Hockey Mom, but very soon the spotlight will shift and the dust will settle on lower and middle America in the form of super-inflation and the kinds of interest rates experienced in the 80's. An avalanche of personal bankrupsies is inevitable.
When that happens there will be no money left anywhere to bail Citigroup out and nowhere for their board of directors to hide.
Friday, October 10, 2008
Trying to stop the bleeding.
Federal Reserve Chairman Ben Bernanke is not looking well these days. As someone described as being an authority on The Great Depression, he would have been wise to bail out himself after inheriting the mess Alan Greenspan left him. Or could it be he wants a ringside seat at the next one?
It's clear that the repeal of the Glass-Steagall Act let slip the dogs of commerce. Having spent some $200 million to lobby on its behalf, bankers had to have had some inkling as to what could happen. Any oversight after its passing was consistently blocked by Alan Greenspan. History will likely judge Mr. Greenspan in the same light as Neville Chamberlain or Goebbels.
Another thing clear is that until there is some kind of national forensic audit on all investment banks, insurers, and commercial banks, no amount of money will restore trust in institutions that have failed to maintain any kind of ethical or moral standard. Paulson's appointment of a former crony from Goldman Sachs to oversee the $700 billion handout is repulsive. And GOP candidate John McCain, a notorious champion of deregulation, is taking his advice from Phil Gramm, the architect of the legislation that repealed Glass-Steagall?
For the past 60 years people have been asking how the German people could have stood silent in the face of Nazism. Perhaps they will be saying the same thing about the American people in the future. In this age of open and free information they should be judged by a more rigorous standard than the German people. What exacerbates any logical thinker is how, come the second Tuesday this November, a Republican could have any chance of getting elected. It boggles the mind.
It's clear that the repeal of the Glass-Steagall Act let slip the dogs of commerce. Having spent some $200 million to lobby on its behalf, bankers had to have had some inkling as to what could happen. Any oversight after its passing was consistently blocked by Alan Greenspan. History will likely judge Mr. Greenspan in the same light as Neville Chamberlain or Goebbels.
Another thing clear is that until there is some kind of national forensic audit on all investment banks, insurers, and commercial banks, no amount of money will restore trust in institutions that have failed to maintain any kind of ethical or moral standard. Paulson's appointment of a former crony from Goldman Sachs to oversee the $700 billion handout is repulsive. And GOP candidate John McCain, a notorious champion of deregulation, is taking his advice from Phil Gramm, the architect of the legislation that repealed Glass-Steagall?
For the past 60 years people have been asking how the German people could have stood silent in the face of Nazism. Perhaps they will be saying the same thing about the American people in the future. In this age of open and free information they should be judged by a more rigorous standard than the German people. What exacerbates any logical thinker is how, come the second Tuesday this November, a Republican could have any chance of getting elected. It boggles the mind.
Tuesday, October 07, 2008
Black Market
The coming week will rank as the worst ever to hit the world when this week comes to a close. The DOW, already below 10,000 points for the first time in five years will probably bottom out around the 8,000 level by Friday. Banks will continue to shake, rattle and roll in an atmosphere of takeovers as the industry tries to sort out the good from the bad. Until banking finds its bottom credit will continue to be difficult to find. That's the good news.
It will surprise nobody when jobless numbers, reported on the first Friday of each new month in the US, hit double figures in November. Christmas is generally the engine that drives the domestic retail market in the US; this year will reflect the first in a series of measures that show the economy as stagnant. Defaults and bankrupts will set new records. Auto sales will be the lowest, and possibly lower than during the 1973 oil crisis.
The surprise in all this is the drop in commodity prices. Gold is still below $1,000 per ounce and the price of oil is still dropping. Common sense says these should be safe havens for capital - with a corresponding rise and yet they remain lower than I expected. Spokespersons say it is because of lower demand, but with winter coming on in North America, Europe, and Asia, the price of oil must rise.
The problem is value: Until the markets - housing, stocks, commodities, etc., bottom out and the debt tally is truly comprehended, it would be foolish to pour money into them and expect a miracle. That many banks will collapse is a certainty and it will take some time before those losses are written off and their assets absorbed into healthier financial institutions. Many countries are now guaranteeing all their deposits, but as the economy worsens it will not take much to see people withdrawing funds at the first sign of commodity increases. If there is a panic bank run the result will not be banks failing - countries will begin to crumble.
It will surprise nobody when jobless numbers, reported on the first Friday of each new month in the US, hit double figures in November. Christmas is generally the engine that drives the domestic retail market in the US; this year will reflect the first in a series of measures that show the economy as stagnant. Defaults and bankrupts will set new records. Auto sales will be the lowest, and possibly lower than during the 1973 oil crisis.
The surprise in all this is the drop in commodity prices. Gold is still below $1,000 per ounce and the price of oil is still dropping. Common sense says these should be safe havens for capital - with a corresponding rise and yet they remain lower than I expected. Spokespersons say it is because of lower demand, but with winter coming on in North America, Europe, and Asia, the price of oil must rise.
The problem is value: Until the markets - housing, stocks, commodities, etc., bottom out and the debt tally is truly comprehended, it would be foolish to pour money into them and expect a miracle. That many banks will collapse is a certainty and it will take some time before those losses are written off and their assets absorbed into healthier financial institutions. Many countries are now guaranteeing all their deposits, but as the economy worsens it will not take much to see people withdrawing funds at the first sign of commodity increases. If there is a panic bank run the result will not be banks failing - countries will begin to crumble.
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