The banks are insolvent, the system is corrupt:

That's the take-away from the Citi action this weekend.

TO ELABORATE A BIT: Until now, it wasn't clear (at least to me) how bad a shape the banks were in, both here and abroad. While some banks, especially smaller ones, are probably okay, the really big ones are in a state where they cannot operate without government help. They are, for all intents and purposes, bankrupt (even if the technical definition does not apply, as some assert).

The way out of this mess is to really nationalize the banks, not dribble money here and there with the hope that they will grease it out. Global Financial News says:

In general, there's no sense of finality here, of the government stepping in and taking charge of the situation. Instead, Treasury seems to hope that with $20 billion and some loan guarantees it will be able to help Citi muddle through for the time being. I suspect that it might end up disappointed.

As to the corrupt. Citi is now trading at six dollars, a 50% jump on the bailout news. Why? Because the shareholders are going to be protected from their folly.


posted by Quiddity at 11/24/2008 09:07:00 AM