The headline on Yahoo’s front page read, “Gov’t reportedly mulls taking larger stake in Citi”. Hmm, I wonder why the government wants to invest in CitiGroup? Maybe I should buy some too! Geithner’s a real value-investor, looking at these beat-down dogs of the dow.
Maybe the headline should have read, “Citigroup insolvent, begs Fed for cash”. It’s a pretty sad attempt at spin. The market isn’t going to be fooled into thinking that the government is “mulling a larger investment” in Citi. They’re on life support and need cash to surive. C’mon Obama, follow through with that transparency stuff you talked about.
How much will the taxpayer get for our stake this time? Last time I believe we scored a 3.5% ownership stake in a $35 billion company for $25 billion plus $100b+ in loan guarantees. Now THAT is a deal.
The Royal Bank of Canada just released a report, and they say most of the upcoming failures will be caused by commercial real estate (CRE) loans. Excerpt:
The Federal Deposit Insurance Corp. closed nine banks so far this year after shutting 25 in 2008 and has 171 institutions on its “problem list.”
To summarize: since 2008 we’ve only closed 34 banks. And RBC says 1,000 may close over the next 3 years. It’s highly unlikely that the FDIC will have enough to cover all those failures. We might need to toss them a trillion too.
The comparison between our bubble and Japan’s seems almost flattering these days. Let’s take a look at how our economies looked going into our crisises:
Japan: Creditor nation, loans others money. High personal savings rate. Large manufacturing base
US: Debtor nation, borrows loads of money. Extremely high debt in all areas: personal, corporate, and public. Shipped most of our manufacturing capacity overseas because the dollar was strong
Add to that our unfunded medicare and social-security liabilities of $45-$99 trillion (depends on time horizon and who you listen to). Either way, it’s an inconceivable amount of money. A USA Today article from 2004 put the number at $53 trillion, which would equal $513,000 per household. That was 2004, hmmm….
Japan’s main stock market index (Nikkei 225) has plummeted from 38k in 1989, to around 8k today. But they maintained a decent standard of living. Health care wasn’t a total disaster. No major civil unrest or riots. I would almost be OK with that. But I still want our government to do better, and restore market efficiency, transparency, and honesty. Ugh.