William Greider: Citigroup: Too Big to Fail?

from The Nation:


BLOG | Posted 11/05/2007 @ 11:02am
Citigroup: Too Big to Fail?
William Greider



The fall of Citigroup is a resonant political event--akin to the Republican Party's failure to win reform of Social Security--only this time the bell tolls for the Democratic Party. The creation of Citigroup as an all-purpose financial supermarket and too-big-to-fail banking marvel was very much the accomplishment of Clinton Democrats. They enacted the law in the late 1990s that authorized this megabank monstrosity, with coaching from Treasury Secretary Robert Rubin, Fed chairman Alan Greenspan and of course Sanford Weill, the creative genius who built Citi.

Now that this institution has slid into deep trouble and Rubin has been appointed emergency chairman to rescue it, Democrats inherit the stink. They made this mess possible. Will they now accept the meaning of Citigroup gone sour and begin to undo the damage? That is, undertake reform of the financial system in fundamental ways? I doubt it, though the message is obvious.

Just as the GOP dreamed for decades of dismantling Social Security, investment bankers campaigned for thirty years to repeal the Glass-Steagall Act, which separated commercial banking from its investment-house cousins. This was the New Deal achievement enacted in response to the double-dealing banking practices that contributed to the crash of 1929. Bankers pushed their depositors into buying the corporate stocks the bankers were hustling, among other malpractices. Wall Street hated the law but failed year after year to win repeal. The problem was always Democrats (since Republicans were sure supporters).

Bill Clinton delivered his "New Democrat" party, accompanied by lots of happy talk about magic words like "synergy" and how "modernization" would create a more stable (and profitable) financial system. It did the latter, for sure, but not the former.

Actually, the combination of insurance, investment banking and old-line commercial banks multiplied the conflicts of interest within banks, despite so-called "firewalls" supposed to keep these activities separate. Much like Enron, placing some deals in off-balance sheet entities did not insulate Citigroup from the losses in its swollen subprime housing lending. The bank has so far written off something like $15 billion and more to come. ......(more)

The complete piece is at: http://www.thenation.com/blogs/notion?bid=15&pid=248817

Shutting down the Iran/Contra investigations in early 1994
Telecom Deregulation Act of 1996
Allowing Pharmacutical companies to advertise freely on broadcast TV, 1997
Repealing the Glass/Steagall Act in 2000

If we need destruction to prove these methods and philosophies don't work, then let the whole place BURN. Elsewise, they will continue to strangle us in the name of "competitiveness."

n/t

but if Citigroup is to survive, it's going to be in a radically different form. The entity that got suckered by all those CDOs and hedge funds will be allowed to drown in them. The bank and brokerage will be bailed out.

Unfortunately, the entities that will be allowed to drown first are all the pension funds, rather the few that are left and solvent.

Saudis Dumping their US Stocks?

Time Warner CEO Parsons to resign
Head of the world's largest media conglomerate said he will step down as of Jan. 1; chief operating officer Jeffrey Bewkes will take over as CEO.
By Paul R. La Monica, CNNMoney.com editor at large
November 5 2007: 2:41 PM EST


NEW YORK (CNNMoney.com) -- After a more than five-year stint running media conglomerate Time Warner, chairman and chief executive officer Richard Parsons announced Monday that he will resign as CEO as of Jan. 1, 2008.
The company said Parsons is turning over the CEO reins to Jeffrey Bewkes, currently the president and chief operating officer of Time Warner. Parsons will remain chairman.


Time Warner chairman and CEO Richard Parsons is stepping aside as CEO on January 1, 2008...


...and as expected, Parsons will be succeeded by Time Warner president and COO Jeffrey Bewkes.
The announcement has been long-expected as Parsons' contract with Time Warner expires in May 2008.
Time Warner (Charts, Fortune 500), in addition to being the parent company of CNN and CNNMoney.com, owns the Warner Bros. movie studio, Internet company AOL and a majority stake in Time Warner Cable (Charts).
"Jeff is the right person to be the next CEO of Time Warner, and I couldn't be more delighted that he will lead this company into the future," Parsons said in a statement. "Jeff is a well-respected business executive both inside and outside the company."
Bewkes will retain his title of president, the company added.
The handoff comes at a tense time for the large media company, whose stock, trading at about $18 a share, is roughly where it was when Parsons took over in May 2002.
Shares of Time Warner were trading about 1 percent higher Monday afternoon following the announcement. The stock had gained as much as 3.2 percent earlier in the day as CNBC and The Wall Street Journal both reported that the news about Parsons was imminent.
The stock has underperformed that of other large media rivals, such as Walt Disney (Charts, Fortune 500), News Corp. (Charts, Fortune 500) and Viacom (Charts, Fortune 500), over the past year.
Parsons successfully fended off calls to break up the sprawling media company. Some investors have argued that a split could boost the overall market value of Time Warner.
But it is not clear that Bewkes, who was named president and COO in 2005 after a long successful stretch at the HBO division, would be similarly resistant to a major restructuring.
On the table, some analysts have speculated, are the complete spinoff of the cable division, selling the Time Inc. publishing division, and either taking AOL public or combining it with one of its rivals.
AOL has been playing catch-up to the likes of Google (Charts, Fortune 500) and Yahoo! (Charts, Fortune 500) in the lucrative online advertising market.
It has been under Bewkes' watch that the company has already publicly listed some shares in the cable division, sold off some magazines and revised AOL's business plan to focus more on Internet advertising and less on subscriptions for e-mail and Internet access.
"I welcome this opportunity to work with my colleagues and the board to lead this company successfully into the future. We have a lot to do, and I'm intensely focused on building shareholder value," Bewkes said in the company's statement.
According to a recent profile of Bewkes in Fortune, a sister publication of CNNMoney.com, Parsons and Bewkes have very different resumes as well as different management styles.
Parsons, a Brooklyn-bred lawyer whose career included stints working for the Rockefeller family and turning around New York's Dime Savings Bank, is known for his affability, diplomatic skills, and social interests (ranging from late-night Grammy parties to his vineyard in Tuscany), Fortune noted.
Bewkes, who grew up in New Jersey and Connecticut, is an alumnus of Deerfield Academy, Yale, and the Stanford Business School. He toyed with becoming a TV reporter and worked briefly in banking before joining HBO as a marketing manager in 1979.
Where Parsons can appear carefree in the middle of a typhoon, Fortune reported, the wire-thin Bewkes, who at 55 is four years Parsons' junior, can seem like a man on a mission who will get around to sleeping or eating next week.
He is, associates say, as relentlessly curious about the minutiae of finance or the HBO development slate as he is about adjusting drapes and lighting when he comes into a room. One person who knows both men well says Bewkes can have much sharper elbows than Parsons and can be a tough boss to please.
Time Warner will report its results for the third-quarter on Wednesday and investors will be eager to hear what Bewkes has to say about the future of the company now that he is set to take charge in January. Bewkes is also scheduled to speak at a media conference in New York later Wednesday afternoon.
Additional reporting from the Oct. 1, 2007, issue of Fortune: "For Time Warner, a time to break up?" by Richard Siklos and Stephanie N. Mehta
For Time Warner, a time to break up?
Wall Street ready for a Time Warner shuffle


http://money.cnn.com/galleries/2007/news/0710/gallery.wall_street_shakeups/index.html
6 big banks, 6 big shake-ups
The mortgage mess has unleashed a restructuring wave as banks try to clean house.
By Grace Wong, CNNMoney.com staff writer

Citi CEO Chuck Prince has been feeling the heat.


1 of 6
Citigroup
Who's out: Chairman and CEO Charles Prince stepped down Sunday. That followed the departure last month of Tom Maheras, a veteran of Citi's capital markets business.

What's shaking: Former Treasury Secretary Robert Rubin, a Citi board member, was named chairman. Sir Win Bischoff, who heads the bank's European unit, will serve as interim CEO. A CEO-search committee has been formed.

Cause of concern: Citigroup said it expects a reduction of between $8 billion and $11 billion in the fair value of its exposure to the subprime mortgage market. Since there are no obvious strong replacements for Prince, fears could set in that the bank could remain headless too long or that the board may move too quickly and pick an underqualified candidate.
Prince out: Citigroup's day of reckoning


2 of 6
Merrill Lynch
Who's out: Merrill CEO Stanley O'Neal stepped down from his post on Oct. 30, becoming the biggest casualty of the subprime mess to date. The ousted executive came under pressure after the company took a nearly $8 billion loss on mortgage bets that turned sour. His overtures to Wachovia about a potential merger, without the nod of Merrill's board, however, likely accelerated his decline.

What's shaking: Merrill had begun cleaning house before reporting its massive third-quarter writedown. In early October, the bank replaced its global head of fixed income, Osman Semerci, with David Sobotka, head of global commodities. The company also appointed head of credit risk Ed Moriarty to the newly created position of chief risk officer.

Cause of concern: The bank took a staggering $8.4 billion writedown in the third quarter, most of which was due to a decline in the value of subprime mortgages and complex debt instruments.
Merrill takes $7.9B mortgage hit


3 of 6
Bank of America
Who's out: The bank said on Oct. 24 it was replacing Gene Taylor, head of its investment bank, with Brian Moynihan as part of a management reshuffle. Moynihan had previously led the company's global wealth and investment management division. Taylor will retire at the end of the year.

What's shaking: Bank of America slashed 3,000 jobs across its businesses as part of the restructuring. The majority of the cuts affect its investment bank. The company is also exiting the wholesale mortgage business.

Cause of concern: Bank of America's investment bank profit fell 93 percent to $1.33 billion in the third quarter.
BofA shakes up investment unit


4 of 6
Bear Stearns
Who's out: Co-president and chief operating officer Warren Spector lost his job in August after the meltdown of two Bear Stearns hedge funds.

Spector's departure left Alan Schwartz the company's sole president, while chief financial officer Samuel Molinaro added the duties of chief operating officer to his responsibilities.

What's shaking: In addition to changes at the top, Bear has been eliminating jobs across its mortgage and investment banking businesses, resulting in an estimated 600 job cuts in those areas.

Cause of concern: Two of of the Wall Street firm's hedge funds heavily invested in subprime securities blew up in June, fanning a global credit squeeze. Bear booked a $200 million loss in the third quarter related to the hedge funds.
Bad news, Bear: Profit sinks 61%


5 of 6
Lehman Brothers
What's shaking: The investment bank announced the closure of its subprime mortgage unit BNC Mortgage in August and cut 1,200 jobs as part of that move.

Cause of concern: The bank took a $700 million writedown when it reported third-quarter results in September, although its overall results exceeded Wall Street's expectations.
Lehman wows Wall Street


6 of 6
Morgan Stanley
What's shaking: The bank cut 600 jobs as it scaled down its residential mortgage business. Morgan said on Oct. 2 that it would combine its global mortgage businesses under a single platform.

Cause of concern: Morgan's third-quarter results, which the company reported in September, were hit hard by mortgage-related losses and a big writedown on leveraged loans.
Morgan Stanley stumbles in latest quarter



Bernanke and the Saudis Punish the US Dollar!
Currencies / US Dollar Sep 21, 2007 - 07:38 AM
By: Money_and_Markets

Jack Crooks writes: With the dollar barely above an all-time low against a basket of the world's major currencies, two major events have now burst onto the scene, slamming it even further:
First, Ben Bernanke and his friends at the Federal Reserve decided to give the stock markets a generous gift, but in the process, have also decided to abandon any vestige of support for the U.S. dollar.

Second, Saudi Arabia has just decided NOT to follow Bernanke's lead, a first step toward unpegging the Saudi currency from the dollar and unleashing a massive new wave of dollar selling from the Middle East.
Here's the scoop on each …
Bernanke Boosts Market's Morale Despite Moral Hazard
As the credit crunch began to panic investors, and as Tuesday's Federal Reserve decision day approached, the entire issue of moral hazard came to the fore.
In this context, moral hazard is simply this: When investors are granted too much protection against losses, they are actually encouraged to continue their reckless behavior.
And now, the fear is that the Fed's rate cut amounts to a bailout for all those who took on too much risk via subprime loans and other credit maneuvers.
The consequences? Potentially disastrous:
Consequence #1: The risk that inflation will take hold.
Even ex-Fed Chairman Alan Greenspan said dramatic easing of monetary policy may open the door for surging inflation.
And by many measures, inflation isn't even tame right now: Crude oil set record highs this week. Gold and other commodities are shooting the lights out. Food prices are zooming higher.
Consequence #2: Treasury bond prices are plunging.
Because investors — in the U.S. and overseas — are worried that rate cuts will fan the flames of inflation, they demand higher interest rates on their longer-term investments. So prices plunge.
Result: Just in the last two trading days, the price of the long bond is down nearly 3 full points. Yesterday's drop alone was the worst since September of 2003.
Biggest Consequence of All: More punishment for the already suffering dollar.
The picture is clear and simple: Investors are dumping the U.S. dollar. Heavy selling commenced immediately after the Fed announcement and has continued virtually nonstop ever since.
Remember: Interest rates are a huge factor in how a nation's currency trades. That's because investors seek out currencies that pay attractive rates of return. When a country's rates are going down, investors sell and move on to greener, higher-yielding pastures.
Bottom line: The recent Fed decision, and the potential for more rate cuts in the future, has undermined the greenback yet again .
To make matters worse …
Saudi Arabia Just Says "No" To the Fed's Rate Cut
Saudi Arabia's currency, the riyal, has been pegged to the dollar since 1986. In other words, the two should trade in tandem based on a fixed exchange rate (3.75 riyals for every dollar).
And as I explained a moment ago, interest rates affect currencies. Thus, when a currency is pegged to another, the two countries involved need to follow parallel interest rate policies.
That's why yesterday's news — that Saudia Arabia decided not to cut its interest rates — was a shock. Apparently, the Saudis are worried that enacting rate cuts would just bring more inflation into their economy.
Now, many market watchers are worried that the country is considering breaking the dollar currency peg altogether. What would that mean? It means that …
#1. The Saudis could start selling their massive stash of dollar reserves.
If they were to abandon the dollar peg, the Saudis would no longer need so many greenbacks. They would have every incentive to reduce their dollar holdings to avoid losses. And they would have every reason to trade those dollars for other currencies such as euros and pounds.
#2. Other oil-rich nations might follow suit.
Saudi Arabia is the big man on campus in the Gulf. And historically, it's been a strong U.S. ally. If it decided it no longer needed the dollar, many other oil-producing nations might reach the same conclusion. In fact, Kuwait already broke its dollar peg in May. And the United Arab Emirates could break off its dollar peg in the near future.
#3. The Saudis might even decide to price their oil in another currency!
Presently, all oil transactions occur in dollars (Iran is the lone exception). This means countries around the globe that purchase oil are forced to hold dollars to pay for it. Should this change, there would be no reason for those countries to hold dollar reserves to pay for oil.
Already, just yesterday, the price of crude oil surged to $84 per barrel — another symptom and consequence of this looming disaster for the dollar.
In each of these situations, the end result would be wholesale selling of the dollar, driving the greenback's value into a further tailspin.
Do I think the Saudis will stop pricing oil in dollars immediately? No. They still rely on the U.S. defense shield. But even the concern that these events could unfold is enough to cause the dollar's value to fall further as worried investors sell their greenbacks.
These Recent Developments Will Shake Up Other Major Currencies, Too …
The falling dollar is not a new story, but it's an ongoing one. And its impact will be felt around the world. In fact, the Fed's decision to lower rates — and create a fresh wave of credit — has affected the currency market quite dramatically.
Want proof? Look at the so-called commodity dollars (ComDols), or those currencies tied to major natural resource-based economies. Australia, Canada, and New Zealand all saw their dollars move up against the greenback.
The fact that growth and monetary policy in these commodity-focused economies remains firm (mainly because of the rising prices I mentioned earlier), makes the ComDols look like very appealing currency plays over the next few weeks.
What about Europe's currencies? Well, the euro has been playing the role of dollar alternative, rising to record highs over the course of the week. The British pound hasn't fared so well because the Bank of England looks like it's facing many of the same lending problems that we have here in the U.S.
And among all the major currencies, the Japanese yen has the greatest potential of all: Not only because of the powerful forces punishing the dollar, but also because of the equally powerful forces I've told you about that are likely to drive the yen through the roof!

with a honorable mention to Bush and his raid the public coffers to prop up the rich policies...