Another titan nearly bit the dust last week the way so many others have. It’s stock closed at $3.77 Friday, leaving this financial Frankenstein monster worth a mere $20.5 Billion – chump change compared to its $244 Billion value a couple of years ago before things went so nuts.
Regulators, including Timothy F. Geithner, President of the Federal Reserve Bank of New York and the new Treasury Secretary appointee, wrestled all weekend in boardrooms with Citi’s Top Brass, like Robert E. Rubin, the former Treasury secretary (and an economic adviser in the Obama Transition Team) and an influential executive and director at Citigroup, and Vikram S. Pandit, Citigroup’s chief executive. What emerged was another bold Bail Out Plan involving US government backing of some $306 billion in loans and securities and a direct investment of $20 billion in the company, to add to the US government’s already diversified porfolio. Good night Free Market Capitalism, Rest In Peace.
Does this staggering behemoth deserve another $326 Billion of your and my tax dollars on top of the amounts totaling now in the trillions as the Fed acts like the great lifeguard of the financial rip tide, racing back, again and again, into the crashing waves to save, not some foundering child, but, like Citi, some enormous white whale in its death throes in the pounding surf?
Well, after four straight quarters of multi-Billion dollar losses and shedding some 75,000 jobs from what was an international workforce of 375,000, “if you’re an entity of this size . . . if you don’t have controls, if you don’t have the right culture and you don’t have people accountable for the risks that they are taking, you’re Citigroup.” (Lynn Turner, a former chief accountant with the Securities and Exchange Commission – NYT 11/22/08 – “The Reckoning”- another corporate obituary).
Citi’s meltdown is the story of what happens after the merger mania cooled down and what emerged, under Chairman Sanford Weil back in the mid-90’s, was a polyglot amalgam of slapped-together companies who did not really talk to one another, were not organized very well, and, worst of all, where the traders were urged to take great and greater risks for which they were handsomely compensated, while the risk management guys were not paid nearly so well and not listened to much at all. Then the true Prince took over Citi, Weil’s lawyer climbed to the helm and according to an early critic, “he inherited a gobbledygook of companies that were never integrated, and it was never a priority of the company to invest,” said Meredith A. Whitney.
Next, at the urging of gurus like Reich, it was off to the credit default swaps and CDO’s (collateralized debt obligations) and derivatives races, those funky, opaque, financial weapons of mass destruction about as comprehensible to the average financial executive as Einstein’s General Theory of Relativity. From 2003 to 2005, Citigroup dramatically increased from $6.28 Billion to more than $20 Billion its CDO dabbling, making much higher commissions for selling these toxic balance sheet timebombs than the ordinary flotsam and jetsam out of the financial trader’s bag of tricks.
But last week, we watched Citi’s stock price melt down right before our eyes and it was not pretty. As Tom Friedman’s weekend column put it, by the end of the day Friday, if you had 5 bucks, you could buy a share of Citi and a MacDonald’s Happy Meal – do you want fries with that??
So, once again, off we go into the wild blue yonder, throwing more good money after bad to prop up Citi, with its departing Chief, Prince having walked away last year with a tidy bagful of Citigroup stock then worth $68 million (God only knows what it is worth now at $3.77 per share!) — along with a cash bonus of about $12.5 million, in lieu of severance. Others, who traded, earned 15, 20, even 30 million dollar annual compensation.
So, we did it again with your money and mine – not that we had a vote or were asked how to spend it. How many more times can we throw this kind of money into more ratholes to save more companies which maybe should be allowed, like some an old animal, to simply walk off into the woods alone and die in peace? And, where, oh where, are all these Billions coming from, and can I borrow a couple for my 401k, which is now a 101k – I could only bring myself to open those envelopes?