Sunday, November 23, 2008

We need a law:

Everytime there is a story like this:
WSJ: Government to Guarantee $300 Billion in Citigroup Assets
... Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.
It should be accompanied with this quote and picture:
"Government is not the solution to our problem. Government is the problem."
Ronald Reagan
, 1981.

And, to be fair, for any Citigroup story, a big mention of Robert Rubin's role in steering the company in recent years:
In 1999, affirming his career-long interest in markets, Mr. Rubin joined Citigroup. ... Consolidation of investment, commercial banking, and insurance services as practiced by Citigroup under the direction of Rubin has been implicated in the subprime mortage crisis.

He sparked controversy in 2001 when he contacted an acquaintance at the Treasury Department and asked if the department could convince bond-rating agencies not to downgrade the corporate debt of Enron, a debtor of Citigroup. Rubin wanted Enron creditors to lend money to the troubled company for a restructuring of its debt; a collapse of the energy giant might have serious consequences for financial markets and energy distribution. The Treasury official refused.


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