Why is it OK to bailout Citi, but not auto companies?

[Riddil]

First off, I'm against all bail-outs. I think they're a sham.

But I don't understand why it's so easy to drop 100's of billions on Citi, but it's OMIGOSH out of the question to give 25 billion to the auto industry?

I just don't see the logic. The only defense I've heard is that the auto industry has poor leadership and strategic planning. Well... uh... why can't the same be said for these financial firms that torpedoed the world economy? I think that's a little worse that what the auto industry did. They only destroyed their own company, not the global markets.

Admittedly I've been out of the country for a few years, so maybe I'm not totally up to speed with current events, and the reasoning behind them.

But can someone... please... explain this to me?

[wolf]

If Citi is getting the bailout, does that mean I don't owe them any more money?

Where's my bailout?

[SteveDallas]

Citibank is too big to fail. I know it's true, because the president of Citibank said so. Now run along and play, and pay no attention to that man behind the curtain.

[TheMercenary]

Riddil. I don't know the answer and I don't believe many on here could give you an accurate answer. But IMHO giving money to the Auto Corps is like throwing money at a problem that is not planning on changing the way they do business. Which is why Congress sent them away and said come back with a business plan to show us you are not going to continue to do business as usual. Banks are more closely regulated buy the government and so they can get deeper into what they are doing and see it. I think they may have a bigger hand in affecting how they are going to do business. That is my understanding.

[Riddil]

Sounds reasonable Merc. And yeah, I totally understand and agree with the logic to deny a bailout to the auto companies. But I'm just amazed that everyone in the gov seems to give the finance industry a free pass.

I agree with Forbes / Romney. Let bad businesses fail. But I'm completely dumbstruck as to the logic why Citi, or AIG, or WaMu, or any of those guys are A-OK to give free money, but Detroit? None for you!

Easier regulation? It sounds almost reasonable, but it still sounds thin... just because it's easier to regulate banks doesn't seem like it should be the end-all-be-all reason why it's OK to give bad companies free money. Following that logic during the depression the gov should have nationalized every single business.

But oh wait... that's socialism, right?

edit... oh, and why can't the reason for a rebuke also be used against the finance industry? They told GM / Chrysler, "Your game-plan stinks. Go back to the drawing board and give us a better one." But why not challenge the banks in the same way? "Oh, we don't know a single thing about your balance sheet, but don't worry! We'll guarantee all your bad loans!"

The whole thing is just... just so... I don't know. I'm dumstruck. Dumbfounded. Flabbergasted. Discombobulated.

[Aliantha]

Citibank in Oz has the worst customer service of all the banks in the country. If this is how it's done everywhere, I'm not surprised the bank has failed.

Daryl got a spam email once asking for citibank account details blah blah. He tried to do the right thing and call customer service to let them know and he could NOT get a real person on the phone. It kept reverting to 'please enter your account number'. This is just one story. There are tons more just like it over here.

[tw]

Originally Posted by Riddil

Admittedly I've been out of the country for a few years, so maybe I'm not totally up to speed with current events, and the reasoning behind them.

Numerous reasons. Some of the numbers you should have known from any responsible news report. GM is worth only $1.8 billion. They wanted $10billion from the government to merge with much less than $0.5billion Chrysler. At what point does any of that make sense?

Then GM, et al wanted another $25billion from the government. Then another $25billion after that. All the while doing nothing - zero - to solve their problems. Even flying executives to Washington in luxury private jets because GM's corporate rules say executives cannot fly commercially. Why? Commercial flights are too dangerous for GM executives - which is why GM maintained seven luxury private jets.

These are but samples of why GM is in trouble. And GM still has done nothing - zero - nada - to address any of their real problems.

We learn from history. When 1979/1981 Chrysler and Ford tried the same thing, instead, the American government did what any patriot and free marketeer would do. No aid was provided. Then Chrysler replaced bean counters with Lee Iacocca. Ford replaced their only problem - Henry Ford - with a car guy. Then both companies addressed problems and became profitable in years. You are expected to know the facts in this paragraph before you even posted. How to save a company? Eliminate the #1 reason for their troubles and the resulting stifled innovation - top management. Further reasons posted in Saving the US Auto Industry,
Saving the US Auto Industry],
Saving the US Auto Industry,
Saving the US Auto Industry,
Saving the US Auto Industry,
and what happened last week in Washington: Saving the US Auto Industry.


So why is this different for banks? A question that requires knowing details in so many posts in Current Events. A snapshot shows how what we knew only kept getting worse. Many posts on this page that cites things like NINJA inBush's Shrinking Safety Zone and
More Welfare for the Rich ,
early symptoms of the problem in The mortgage and The mortgage,
early attempts when we had no idea how much accounting was fraudulent in The Crash, etc.,
another example of how naive we still were The Crash, etc.,
some indication that things may be even worse in Does Anyone feel like Bailing,
George Jr's secret change to throw more money at the problem in
Greatest raid of the Treasury yet. (tax code 382),
how much worse (even in October) the problem would become as demonstrated by AIG and another post on GM in Does Anyone feel like Bailing,
how large the problem became by mid November with no end in sight and why - in Sub-prime Bail Out,
and finally how little we know as even the biggest goes for a second rescue in Does Anyone feel like Bailing.

Yes this post does not (yet) answer why banks should be assisted. But those reasons are more complex. If we were to apply justice equally, then finance institutions would never get such assistance. But they can better afford to buy politicians. Just from those above cited posts, notice that Goldman Sachs is a more honest institution. And yet even with government assistance, they were still going to reward their top executives with a smaller bonuses - only $67million each. Why? These executives could not survive on their base salary of $600,000 per year. Does this not say why finance companies get protection early?

Not completely. There is more. However economics takes revenge - and is not fair about it. When we needed to go after the problem when it was obvious with a 2001 bank failure, instead, our wacko extremists advocated more deregulation. The time to be fair about stopping a massive recession was before 2004. Now the rich stay rich AND all Americans must pay for their fraud and excesses. Unfortunately, even our government is still not attacking the excesses found in financial companies. Fear mostly. Worse, nobody still knows how to solve a problem that can only end when a significant drop in the American standards of living occur.

Appreciate the numbers - these are massive numbers - as cited in Does Anyone feel like Bailing.

Feel free to describe our economic crisis as rape. Except we all but voted for it.

[tw]

I attempted to sound byte the problem in How the GAME is played. Hopefully one can appreciate how a simple mortgage failure now causes massive asset losses.

[xoxoxoBruce]

Citi is a major player in dozens of countries. I think they are afraid it will cause too much damage overseas, causing even more resentment with our allies.

[Riddil]

TW... very thorough. But.... eh... actually, I'm strongly against any sort of bailout. What you did was give a lot of evidence supporting why all of the bailout's are a sham.

But that's not my question. I've already seen a lot of those number, and agree that the bailouts are a sham. But... how... why... does it seem that it's A-OK to bail-out finance, but the auto-industry, OH NOES!

Personally I think Bruce is on to a big part of it... China had a huge chunk of their national surplus re-invested directly in Fannie and Freddie. If that money dried up we'd have an international crisis. I'm sure there's other similar stories at the other finance firms.

[tw]

Originally Posted by Riddil

But that's not my question. I've already seen a lot of those number, and agree that the bailouts are a sham. But... how... why... does it seem that it's A-OK to bail-out finance, but the auto-industry, OH NOES!

As I said before, I could not answer that part of your question without first defining the devil. What do we do with Citi? Break it up? Sell it to someone else? Unravel and trade off complex financial instruments?

Citi is unique in that most every major American financial entity (including non-finance corporations) are said to be connected with Citigroup. It cannot go Chapter 7.

Other disasters such as Countrywide were solved by being absorbed by Bank of America. BOA can now slowly dissolve the mess while taking time to unravel absurd contracts and assets. Doing all this by employing same people who knew it best - who made the mess. As described in other posts, these various financial instruments are complex, tied into tangible assets that are not apparent or completely unknown, and have no definable risk. In short, it would take years if not a decade to resolve the mess. And those financial instruments cannot easily be sold. Nobody knows what they are worth - if anything.

Now take the same problem throughout all of Citigroup. An institution so large and unwieldy that its CEO (in frustration) was said to be trying to break it up - spin off assets where possible. Well Citigroup did manage to spin off (if I remember correctly) Travelers Insurance. But the breakup of Citigroup would also take years under the best of circumstances. Today, nobody has the money (or bravado) to do any such deals. Breakup is out of the question. Without breakup, nobody could do what BoA did with Countrywide.

Unraveling all those assets would take longer than Citi's current life expectancy. Threat of bankruptcy would not change anything.

Whereas GM's problems are far simpler and easily solved if management wanted to address their problem, the banking industry is more complex - would take far longer to resolve even under the best of conditions. Whereas GM could easily be resolved in Chapter 11 or even by the threat of Chapter 11, the same solution could create havoc in the banking industry.

All entities are dependent on the liquidity provided by the banking industry. Essential in that industry far more than any other is the issue of trust. No trust means all other industries stop doing any deals.

Back to 1979/1981 Chrysler and Ford. They easily solve their short term problems by doing deals with a large number of banks. What happens to them today if there is no trust in the banking industry - if nobody knows that your line of credit with XYZ bank remains because XYZ bank is also going under? That trust is what makes possible deals based in credit and liquidity.

Again, this is making a deal with the worst of all devils. But in the case of largest banks - that are even essential to US international transactions - there is no short term solution. On that I must conceded to the government's department of corporate welfare.

The government deal with Citigroup should be ruthless - require its complete breakup. However, ever since Sandy Weil left, I believe Citigroup also had considered that necessary. There is no other alternative to all those complex financial instruments that make it virtually impossible to measure the value of Citigroup or any of its potential pieces. Only the government has the credibility to remarket those instruments to others. But again, that too is a bailout. We put our balls in the devil’s hands. He need not negotiate for our souls. He now has something better.

And finally, its not just China obligations. Saudi trust is heavily invested in Citigroup having increased its stake to help America. Do we then cut them off at the knees? Citigroup makes business connections between the US and virtually every nation in the world. It is that complex. Even governments used Citigroup.

Let's face it. The time to protect ourselves was back in 2000. Finance industry has everyone by the balls. That's blackmail and we let it happen. Fair would be to let them go Chapter 11. But when economics takes revenge, nothing is fair anymore. Just another reason why we should have addressed these problems long ago when the Congress tried to even double the SEC budget.

They will continue to stay solvent and rich - and now little Americans must pay big time. Neither of us like it. But doing what we want or what is fair is no longer an option. Economics is now taking revenge because we did not let market forces fix it earlier and used deregulation to let it get worse. Especially in the past eight years, rather than let market forces fix our economy, we used lower interest rates, special exemption tax laws, illegal tarrifs, sham financial instruments marketed as assets, unrestricted deficits, and favoritism to protect our industries from free market forces of correction. Now we must pay for our foolish economic stimulus that was used to also protect GM, the obsolete technology steel industry, airlines, and of course the devil itself - our deregulated finance industry where everyone has obviously been overpaid for far too long.

[sugarpop]

tw, sounds like you have a real grasp of what is going on.

I was against bailing out the banks, and I was especially against bailing out AIG. It isn't capitalism if we bail them out when they do stupid things that make the company fail. It's socialist corporatism. If we're going to have socialsim, it should benefit all the people, not just the wealthy or corporations. and what REALLY pisses me off, is they aren't getting rid of the people who caused this mess in the first place, and they are still getting their multi-million (billion?) $$$ salaries. I am reeeeeally hoping that when this is over, those ridiculous salaries will dissapear. It's obscene, how much some executives make.

I think we should bail out the auto companies, there are too many jobs at stake, but we should only do it IF they get rid of the executives and BODs who killed the electric car and decided instead to build bigger and heavier trucks and SUVs that got less gas milage, and IF they start making electric cars again. They have fought regulations on trucks and SUVs for years. GM actually made an electric car in the 90s that people loved. They leased them out, and when the leases were up, instead of selling them to the people who wanted to buy them, they confiscated them and CRUSHED THEM. Now why would they do that? They could have led the green revolution with cars, but they WILLFULLY chose not to. So those yahoos need to go. Period.

and you know what really slays me? When we're talking about universal health care, it's too expensive. the money isn't there. but now we have all these billions (trillions?) to bail out Wall Street and corporate pirates? Why do we have money for corporations, but not for people?

So we gave them the money, but it isn't being used for the purpose for which it was intended, which was to stop foreclosures and the domino effect they were causing. I thought they should've just given the money to us, the people, then everyone could've used it to pay their mortgages, or for whatever. Seems to me like it might have worked better to do it that way, because what they're doing certainly isn't working.

Now, it is a never-ending cycle. Everyone has their hand out. And meanwhile, people are still losing their homes, and their jobs, and their benefits, and their investments. IMO, the people who caused this mess should go to prison, AND they should lose all their precious money, because they knew what they were doing. I want to know why they didn't try to stop it sooner.

[TheMercenary]

Originally Posted by sugarpop

tw, sounds like you have a real grasp of what is going on.

No, he has a grasp of his fantasy as he sees it. Not everyone shares his fantasies.

[lookout123]

I thought they should've just given the money to us, the people, then everyone could've used it to pay their mortgages, or for whatever.

They tried that. That is how we got into the mess we are in.

/Fed/"The market is down you say, here have some money and some nice low interest rates. Unintended consequences, you say? Baaaah, what could possibly go wrong with handing people unable to handle their money more free money? Now vote for us and go back to the mall."/chairman/

[classicman]

welcome back lookout - missed ya!