A Sign of What’s to Come

So we’ve pumped in $45 billion… and the company’s market cap is $13.4 billion.
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Happily, we just happen to have a very recent model of what not to do after a real estate bubble in a wealthy country. Why are we hewing to the script of what not to do? Why aren’t we treating this bank like we treat the 4 banks a week the FDIC takes over?
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Bursting bubbles are absolutely no fun at all. But zombie banks– that’s how you get from a recession to a lost decade.

What Elvis said.
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Drives me nuts when people in the news, and that includes the reporters who frame the stories, fail to mention that we are “nationalizing” 2-3 banks every week under FDIC. That the process is orderly, well understood, and results in the institution being back in the private sector as quickly as possible.
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The only thing driving this dynamic is fear of th wall Street reaction when all the shareholders realize that they made a bad investment and will lose that money. That is a risk we should not socialize, as much as they want us to.
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Back to the msm (newspapers, network and cable teevee, newsmagazines)issue. Failure to ask the right question, or the necessary followup, is epidemic and fails the media’s core task to inform. For example, when Grassley was on NPR 2 days ago, the reporter allow3ed him to put out the zombie distortion that lowering taxes raises more revenue, without pressing on the key point – that it doesn’t raise more money than the tax cut cost.

Citibank raised interest rates on card holders last month due to the bad economy. We opened a Sears card last year to get a discount on a new dryer. We then paid it off in full with the tax rebate. I haven’t used the card since. A letter came in the mail two weeks ago that Citi underwrites Sears cards & they were raising rates because of economy. Same with our regular card that we use rarely to purchase airline tickets, etc.

Raising rates seems counter productive to me. Doesn’t it up the chance that people will default on payments plus unfairly punishes those who use credit responsibly.

wall Street reaction when all the shareholders realize that they made a bad investment and will lose that money.
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Much of our political thought involves imagining undeserving people who are getting benefits at our expense. It works in two directions. Whether you imagine shiftless unemployed people who nevertheless manage to go to doctors and send their kids to school, or fat-cat bank executives flying down to the VI for ‘retreats’ on their yachts, the process of imagining itself drives our emotional reaction and eventually our voting behavior.
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I only say this because, while its easy to demonize “bank shareholders” as deserving what they get, nthe truth is that many ‘shareholders’ are in fact Mutual Funds that are holding the retirment savings of millions of ordinary Americans.
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Much of what we face now will be a matter of allocating discomfort so that we feel we’re rising and falling together, but the process of pointing outward to decide who should be hurting hasn’t helped us so far and won’t help us in the long run.

“I vote that we start by abolishing those annoying ATM fees.”
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Not a bad idea. Al Franken got elected president using that as his platform.

I vote that we eliminate my mortgage. All in favor, say nothing, just go about your normal routine.
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All opposed, well, you’re obviously terrorists.
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Privitizing gains and socializing losses, that’s a good deal if you’re on the right end of it.

The good news for the administration is that they can accurately push back on criticism of “nationalization” that they were forced into this agreement by Citi itself. And Lindsay Graham…

http://www.political-buzz.com/

Welcome back, KT! Swampland was distinctly not improved by your absence.

What FT said.

Welcome back K Tizzle. Maybe I can finally get through a day without praying for the horrible demise of Michael Scherer now that you are back.
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As for what we should do I say we fire all of the management at Citi and find a small bank that is improbably doing well right now and let their management have a whack at it.

Actually, I don’t mind paying a dollar at an ATM. The bank that owns it has to cover its costs somehow. It’s when MY bank charges me for the same transaction that I fume.
Therefore my vote for first priority is to send the whole staff to a basic economics class. Which should include a chapter disabusing them of belief in magic investments and perpetual-motion machines.
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AND, yes — welcome back, KT!

What Friad, cdr, sgw and Joe said. Welcome back.

That should be friar, not friad – which is an alternate spelling of how CPAC makes me feel.
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Benen – NYUK, NYUK, NUKE…. What is it about conservatives and their attitudes about attacks on U.S. cities?

What wvng said– glad you’re back!

I only say this because, while its easy to demonize “bank shareholders” as deserving what they get, nthe truth is that many ‘shareholders’ are in fact Mutual Funds that are holding the retirment savings of millions of ordinary Americans.
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The fact is that as of 2001 (its gotten worse this then, to the point where its now around 90%, but I like the link to the 2001 data) the wealthiest 10% of Americans hold 85.5% of all investment wealth, and 84.5% of all stocks and mutual funds. (see http://sociology.ucsc.edu/whorulesamerica/power/wealth.html ) In other words, over 85% of the money we spend trying to hold up stock prices goes into the pockets of only 10% of Americans.
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It would be cheaper to just hand cash to those in the bottom 90% to make up for losses in their mutual funds, etc.

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welcome back, Ms T! (after all the crap you took before you went on vacation, are you surprised at how happy everyone is to see you?)

KT, welcome back.
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wvng, great blog.

pluk – that is an excellent point. We need to get past the point where clowns like Matthews say the DOW is Obama’s score card, because fear of the market’s reaction is behind some of the weak decisions being made by the Obama financial team. The reality is that a lot of bad investments were made, and when you do that you lose money. hilzoy just figured out how really bad the investments were:
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If I’m reading this right, within four years of being issued, two thirds of these CDOs are in default, and their recovery rates are very, very low. That’s just staggering. It’s actually hard to understand how the banks managed to do this badly: you’d think they could have done better hiring people off the street and paying them to put all those nice little loan documents into piles at random, or tossing mortgages down the stairs and bundling them based on how they landed. They certainly didn’t need to hire people with advanced math degrees and pay them seven- or eight-figure salaries to get these kinds of results.

Thanks Rose. Praise appreciated and constructive criticisms welcome.

wvng – down South, Friar Tuck often comes out “Fria Duck.” You were speaking in dialect, and didn’t even know it! Good job.

JoeB writes: Actually, I don’t mind paying a dollar at an ATM. The bank that owns it has to cover its costs somehow. It’s when MY bank charges me for the same transaction that I fume.

Good point. Plus, when I go to an ATM, I’m actually SAVING MY BANK MONEY, because they can employ fewer tellers. Are you listening to me, Wachovia? I may be owning you soon, too.

pluk: Thanks for that link. I more-or-less was aware of those numbers, but it’s startling to see it laid out in graphs.
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Somebody put THAT on the cover of a glossy newsweekly and we’d really become a nation of socialists, and not in the Newsweek sense of the term.

Thanks for returning, KT (and not a moment too soon).
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Thank you so much for responding to commentary!
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So now that we own the bank, what should we do with it?
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1) Reorganize, selling off non-core banking functions soon to be destroyed by regulators anyway (mortgage securities divisions come to mind)
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2) Reorganize, selling off whole regions of banks, breaking up this gigantic pseudo-monopoly into smaller parts, therefore creating competition amongst the new smaller players for loan-takers
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3) Restructure, firing all board members, all executives responsible for failed policy-making decisions, and generally cleaning house for new management to take over
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4) Re-orient the institution to its basic nationally-focused operating premises, and away from its identification with global capital
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5) Put what’s left back on the selling block (along with its better balance sheet) for the market to purchase
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6) Learn to live with smaller banks, and not New York oligopolies for the first time in 120 years

pluk,
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An interesting link. I did notice two things as I was reading it. The authors made two choice both of which widened the gap they were endeavoring to illustrate. The choice to subtract out durable houshold items certainly subtracts a significant larger fraction of wealth from ordinary people than it does from wealthy people. And secondly, we all know that a significant factor affecting most families that the rich avoid, is high leveles of credit card and consumer debt.
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A significant part of the reason that the rich get richer and the poor get poorer is that the rich don’t allow themselves to pay 18% on their credit cards or worse yet, take out payday loans and use rent-to-own stores for their TV’s and couches.
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While selling tax cuts is one way middle income people have been gouged in recent years, its certainly not the only way.

I join the welcome back chorus – hope the folks are doing well in their new surroundings.
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The guys on CNBC this morning were all a-twitter because most of the other bank stocks were down pre-market open as well. Their explanation was that everyone was worried about what the government would do now – was it going to take over the rest, they don’t know how to run a bank, etc., etc. Geez. Of course they forget the ones that are taken over every week (admitting they are much smaller.)
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The only thing that gave me any hope for the country was that a special guest said, As I Repub, I say to my other Repub friends, get over it – he won. Let’s move on and get to making things work. Of course, the regulars pushed and pressed until they got him to say something a little less positive, but baby steps.

Did you wake up feeling like a titan of Wall Street?
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No, I woke up feeling like The Man’s been stepping on my neck for the past twenty years.
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I say we crack open the ATMs like pinatas, gut the buildings, and turn them into libraries and community gardens.

Also, welcome back, KT!

Welcome back KT. I hope your vacation was restful and relaxing. It’s time to go back to the grindstone. Now that I own a bank, I want them to offer checks with designs that reflect the times we live in. I want a vampire on my checks having a stake being driven through it’s heart by Van Helsing with a word bubble that says “Take this you bloodsucker!” It won’t help our bottom lines, but the ultility companies, insurance agents, hospitals and doctors might get the hint.