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

[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/

[sugarpop]

Originally Posted by lookout123

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/

That isn't really what I was talking about... at all. But, I like this... "Baaaah, what could possibly go wrong with handing people unable to handle their money more free money?"
YES, isn't THAT what we've just done with Wall Street and the banks and all those corporate pirates?