Citigroup at the Public Teat

Gary’s Note: Despite wanting to pay back some TARP, Citigroup will still be a bloated, sickly animal on the dole. And there are others. Samantha Buker reports below.

By Samantha Buker
December 15, 2009
Baltimore, Maryland, U.S.A.

Citigroup at the Public Teat

Citigroup is to pay back $20 billion in TARP to government. Why stop so soon the magic IV drip known as TARP funding (which had just been so graciously extended by the Treasury)? It’s not because the company is back in good health. It just wants to keep ahead of the talent poaching with the zombies doing jumping jacks — the likes of Goldman Sachs.

Having just come off an IV drip-fueled recovery from pneumonia last week myself, I know it’s hard to work at full capacity even now. I’m still weak. Citigroup will be paying for its government payback by offering new shares and — surprise — taking on new debt!

Obviously, one golden rule escapes Citi: “Neither a borrower nor a lender be.” Too bad that’s its business model’s backbone. Punishing shareholders with dilutive offerings is the only “powerful” move. Just like collecting higher interest on its customers’ maxed-out credit cards, this move doesn’t equal solvency. We’d dump shares of Citi right now — our federal government plans to do so “sometime this year.” (Too bad it wasn’t day trading like the rest of Wall Street.)

Of course, the time for outrage was long ago…back in the go-go late ’80s. Like today, it was a time between recessions. Unlike today, it was a time where the fed government was about to look at balancing the budget. But on Wall Street right now, banks are paying back TARP left and right and it’s a wonderful life once again.

We don’t believe the WSJ hooey and look toward a “Ghost of Citi Past” to show us the true health of his former company.

Contrite Former CEO Tells All As Citizen

“I would compartmentalize the industry for the same reason you compartmentalize ships. If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking, you’d have consumer banking separate from trading bonds and equity.”

  — Former Citicorp CEO John S. Reed, on Nov. 6, 2009

Now you tell us, John? This is not a case of better late than never. The bastard company that he stitched together with the infamous Sandy Weill is just one of many overweight passengers on our beleaguered ship of state.

Back in 1989, Sarah Bartlett for The New York Times wrote of him:

“Talking with John S. Reed, the chairman of Citicorp, is a little like standing on the bow of an ocean liner and peering into the distance through a spyglass. There, just barely visible on the horizon, is the fuzzy outline of the Citicorp of tomorrow.”

Reed boasted to her of creating “the world’s first truly global financial institution.” Mombasa, Bangkok, Sao Paulo, Dusseldorf…it all sounded so good, until the merry-go-globe stopped in its tracks in the credit crisis.

Today, in late 2009, Reed writes to The New York Times to apologize for his role in creating Citigroup. His mea culpa asks pardon: “When you’re running a company, you do what you think is right for the stockholders. Right now, I’m looking at this as a citizen.”

A citizen? Wow, he must still be holding a lot of Citi stock…We’re now on equal footing with Mr. Reed, since our government Treasury now holds 34% of this accursed stock.

Now we’ve hit on the base problem of modern economics. Back in Adam Smith’s day, “citizenship” was getting a new patina: fresh blood crying, Freedom! Nonfeudal economics played out as moral philosophy. Wall Street tells you it’s science, while its calculations and models constantly fail.

Our 70-year-old talking ghost of a former global financial wunderkind, John S. Reed, shows us the dilemma in black and white. Back in ’89, a few days before hitting 50, Reed was a greed-based, bigger-is-better economist. Even the Third World was his oyster. Today, he’s decided to become a philosopher from his Park Avenue office.

We wonder whether this Scrooge will really pay campaign donations to those who would reinstate the Glass-Steagall Act. Moral philosophy only chugs along into the fighting ring when plenty of money backs it. 

The One-Man Bank Smackdown

However, this would mean giving dough to one Vermont independent, Sen. Bernard Sanders. (This guy is also the only conscientious objector who says: Remove Ben from his Fed perch. Sixty votes are needed this week, and Ben has no reason to quake in his Italian loafers.)

Sanders says: If a bank is too big to fail, it’s too big to exist. His proposal allows the Treasury to come in and take a hacksaw to institutions in the financial sector. Note that The New York Times now calls this sector: “the nation’s financial system” — another sign that Wall Street’s merged darlings and bank holding companies are way too big for their bespoke britches.

So Sanders leads the charge: Break up Citigroup. And while you have the machete out, Geithner, tackle Bank of America, JP Morgan Chase, and Wells Fargo. It should come as no surprise that when pressed, Sen. Sanders would check the box labeled “Socialist.” I’m betting that’s why he did not include government sucklings Fannie Mae and Freddie Mac on the list of breakup candidates.

Writing you from the front lines of life-support,
Samantha Buker.