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Citigroup is ALREADY Being Broken Up ... But Not Enough
MarketWatch points out that Citigroup is actually already being broken up:
Citigroup Inc.... is already being broken up under part-ownership by the government, [Richard] Bove and other analysts say...
Citigroup, roughly a third owned by the government, is already being
broken up, giving investors a preview of how other large financial
institutions may be shrunk in future.
"The break-up of some of the banks has already occurred," Bove said. "Citigroup doesn't really exist anymore."
Late Thursday, the company unveiled plans for an IPO of its Primerica
business, which sells life insurance, mutual funds, variable annuities
and other financial products.
Citigroup sold its
Smith Barney brokerage business to Morgan Stanley earlier this year and
had already jettisoned most of its insurance operations.
Other
businesses sold include its money-management arm, retail bank networks
in Germany and Puerto Rico, brokerage, banking and consumer finance
operations in Japan, Diner's Club and other credit card portfolios,
payment processing businesses in the U.S., India and Brazil, and a
controversial energy-trading unit called Phibro.
Businesses that
remain on the block include Commercial Credit, The Associates, most of
its mortgage, auto and student-loan portfolios and possibly its Mexican
bank, Bove said.
Citigroup had $2.4 trillion in
assets in September 2007 and this has declined to $1.9 trillion in two
years, the analyst noted.Citigroup has housed all
the businesses it doesn't want in Citi Holdings, while the operations
it wants to keep are in Citicorp.
The remaining
institution will have roughly $1 trillion in assets, with a leading
credit-card business, a large retail bank in New York, a medium-sized
retail bank in California, a clutch of small private banks globally and
a top payment-processing and lending business, Bove said.
"The Treasury Secretary and numerous other bank regulators have spoken
repeatedly about the need to gain the power to liquidate companies that
pose systemic risks," the analyst wrote in a recent note to investors.
"Citigroup is the laboratory experiment to show how it can be done."
I applaud peeling off divisions of the TBTFs. But unless Glass-Steagall
is restored, and the overall size of the banks reduced significantly,
they still pose a gigantic and very real risk to the economy.
Indeed, the
MarketWatch article goes on to quote Economist Henry Kaufman (a former
Salomon Brothers executive who was on the board of Lehman Brothers) and
Simon Johnson saying the same thing:
The
firms would probably still be too big to fail, Kaufman said, adding
that the only way to change this is to shrink the firms and limit many
of their activities...
Simon Johnson, an MIT professor and former chief economist at the International Monetary Fund, reckons there should be caps of roughly $100 billion on the assets of financial institutions and "serious criminal consequences" if firms are caught trying to get around such limits.
Bove things that B of A will be next:
Bank
of America, which has also received a lot of government support, is the
next candidate to be broken up, Bove said.
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So the GOVT FORCED BAC to take ML at Gunpoint..and now they will FORCE them to give it up?? You must be a wacky Lib-Tard.
This posting is a perfect example of Garage_Blog gone wrong.
Thanks for making the World a little dumber today. Thanks!
If each of these 100 billion limit banks still has access to free credit from the Fed and uses it to "invest" in derivatives, if they are all playing the same game and will be subject to contemporaneous systemic collapse, why wouldn't they all be bailed out? The magnitude of the risk isn't being changed, just the number of names that get bailed out. i don't get how breaking them up helps. Please explain.
Wouldn't have been that bad.
It would have been BETTER had BAC, C, AIG, ML, and the others allowed to fail. Sure, some depositors and investors might have been damaged but most would not have and if you had uninsured exposure to these sick institutions that's on you - and no one else.
If I saw it coming and got "out from under" THREE of these sick puppies myself (and I'm sure I'm one of the least educated and sophisticated guys here) and I think so could a lot of people.
The immediate hit would have been bad but we've have been past it by now and on the mend.
Our absolute refusal to "bite the bullet" and tolerate some intense pain for a brief period of time is going to come back and haunt us BIG TIME down the road.
Just ask the Japanese to see how "kicking the can" down the road goes ....
KptLt. laughing swordfish
9er Unterseeboote Flotille
None of these stabs at answering mrhonkytonk's question are satisfactory. All assume an intolerable financial credit meltdown......but that was really the issue. Why would that have been inevitable? Seems to me the major casualties would have been financial players in the derivatives markets. Since 99% Americans are not even allowed to participate in the credit default swaps markets, why should they care if the whole $quadrillions just evaporates? I just don't buy the argument that farmers would stop growing chickens if GS failed. One thing's for sure, though. Traders at GS prop desk have no idea how to grow chickens.
Had BAC, C, AIG been allowed to fail, any depositor, investor, insurance policy holder unfortunate enough to patronize these companies would have been left holding the bag. AIG failure would have infected numerous institutions and might have possibly resulted in a Dow average of @ 2000, massive default of businesses, unemployment exceeding 50%, and possible civil unrest. We see recessions every ten years, and they are painful for some, but most keep working and spending. Personally, I could give a shit less about the fate of an investor who should understand risk--but to wipe out depositors who were kept in the dark by WallStreet is wrong. Collapse of the banking system, at ground level--means just that. No building, little farming, no home buying, no car loans, i-pods, smart phones, boxed wine, Professional Sports etc. Just as people are inter-dependant upon each other (you wouldnt perform dental work on yourself)---the financial system had abandoned thrift, common sense, and prudence--emershing and entangleing itself in a co-dependant (unhealthy) manner. Think "dominos". An engine can propel itself on 6 of 8 cylinders to make it to the repairman, but a seized engine is beyond repair. Simplified, yes---but perhaps we overthink these situations to our detriment.
I know it would be purely speculative, and I freely admit to being an ignorant hick, but I would really like for someone to 'splain to me the likely outcome that would have occured if AIG, C, BAC, etc had just been allowed to fail. Maybe I should be more trusting, but I am having trouble figuring out just why I (Joseph-box-wine) should care or how I would have been affected and over what period of time. What does "collapse of the banking system" really mean at ground level? Wouldn't other entities (solvent banks, insurance companies, newly created banks etc.) be willing to loan money to worthy borrowers? Wouldn't other entities be willing to buy the good pieces of the failed institutions? There is a faint odor of feces connected with the whole hair-on-fire drama last year that sticks in my subconscious somewhere. Can't quite put my finger on it. One of you brainiacs want to take a shot? Or direct me to something already written? Much obliged.
In the absence of a functioning banking industry the peoples of the earth would stop working. Farmers would stop growing food, clothes would not be sewn, children would not have schools, doctors would not heal the sick, houses would deteriorate, idle cars would be rusting away and the world would come to a complete standstill. We would all be living like pathetic dependent creatures, waiting for our heroic bankers to reorganize and get credit flowing again to save us from our miserable lives. Then the clouds of doom and gloom will part and the sun will shine again.
A lot of great reasons can be cited, however, I think the most basic reasons are fundamentally human. We all have to eat every day, and are prone to panic. Sure some bank would be willing to step in, but they can't do it instantly. Merchants can't take delivery because most everything is financed. By not being to take delivery, you can't keep your shelves stocked. People can't buy food. Panic.
I also think most payroll is meant with short term financing.
At least that's the doomsday scenario.
At the risk of sounding ignorant, why is it that "everyone" knows Glass-Steagall should be restored yesterday but there is not one peep about restoring it from anyone in CONgress or Obamaland?
I won't hold my breath on an involuntary BAC breakup. The ML marriage came about courtesy of the business end of a Gubmint shotgun less than a year ago.
A more realistic scenario would be retail/investment banking imploding itself, thus triggering the dissolution of these linkages. Only an overwhelming tragedy will get it done, unfortunately. With a government full of paid off chickenshits, the political will is just not there.
We is in recovery mode. No problems here. Just need some regulatory tweaking.
Hmmm a $100 billion limit on banks would help commercial real estate too. We'd need about 50 or so new corporate headquarters for the new pygmy regional banks.
if Dick Bove says it's so, then it must be so; after all there is no analyst more credible on Wall Street or in Tampa than Dick Bove (or as the blog Dealbreaker.com calls him "the woodland one" " the original furry woodland creature" etc. )
Is there a big difference between 100 small banks going out of biz for being stupid or 1 big bank (same assets). The problem wasn't TBTF, it was stupid risk taking. If citi was 10 banks, they would still all be out of biz...