Comments on: Citigroup: World’s Worst Investment to Get Even Worse http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 22:06:42 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Amateur http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-2/#comment-149091 Amateur Sat, 28 Feb 2009 21:07:03 +0000 http://www.ritholtz.com/blog/?p=20270#comment-149091 I would not wish to defend Citi's shareholders, who deserve to be diluted to zero much faster. But, 1. Nationalization does not mean that losses for the public will be smaller. Or bigger. It just means a change in ownership of banks and the procedure to appoint management. 2. Cancellation of current shares through special legislation would entail more trouble and litigation than just diluting them under existing laws. 3. Only defaulting on some of Citi's obligations might pass some of the cost to the holders of the defaulted credits. I do not advocate this default, but it must be on the table for the sake of any honest argument about nationalization 4. The debate would be more useful if the matter of ownership of the banks is held separately from the debate about which obligations will be maintained, and which, if any restructured. 5. The primary role of the government is the role of regulator. The fact that this role was performed poorly, does not mean that it has to be abandoned, or replaced by the role of shareholder. 6. There is nothing a shareholder can do that a regulator cannot do better. Holding both roles, on the other hand, creates a conflict of interest situation that will damage the quality of regulation. I would not wish to defend Citi’s shareholders, who deserve to be diluted to zero much faster.
But,
1. Nationalization does not mean that losses for the public will be smaller. Or bigger. It just means a change in ownership of banks and the procedure to appoint management.
2. Cancellation of current shares through special legislation would entail more trouble and litigation than just diluting them under existing laws.
3. Only defaulting on some of Citi’s obligations might pass some of the cost to the holders of the defaulted credits. I do not advocate this default, but it must be on the table for the sake of any honest argument about nationalization
4. The debate would be more useful if the matter of ownership of the banks is held separately from the debate about which obligations will be maintained, and which, if any restructured.
5. The primary role of the government is the role of regulator. The fact that this role was performed poorly, does not mean that it has to be abandoned, or replaced by the role of shareholder.
6. There is nothing a shareholder can do that a regulator cannot do better. Holding both roles, on the other hand, creates a conflict of interest situation that will damage the quality of regulation.

]]> By: jmay http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-149086 jmay Sat, 28 Feb 2009 20:46:08 +0000 http://www.ritholtz.com/blog/?p=20270#comment-149086 I'm not an economist, but amidst all the whining and righteous indignation, perhaps someone could answer a few questions for me: 1) Isn't the current global banking structure currently very much skewed in America's favor? 2) If America's banking conglomerates are allowed to fail, what percentage of future financial earnings will be lost to foreign banks around the world that swoop in to take their business? 3) What percentage of U.S. GDP will be lost in the process? Look -- Hank Paulson was a Republican, but he was not an ideologue. And for all the right wing blather about Obama, and how powerful it makes people feel to say they've already given up on him, Obama is a moderate. What Paulson and Obama share is a global awareness -- Paulson visited China many, many times and Obama spent years in Indonesia. They understand how quickly the world is changing, and they understand the enormous value of America's continued position as front-runner. Despite the breath-taking number of screw-ups, we are still the only ones who can take ourselves out of the game. Even if we don't recoup a dollar from the government investments in Citi and the like, there is still a quantifiable value to keeping these institutions operational, and there will almost certainly be unforeseen consequences to letting them fail. I’m not an economist, but amidst all the whining and righteous indignation, perhaps someone could answer a few questions for me:

1) Isn’t the current global banking structure currently very much skewed in America’s favor?

2) If America’s banking conglomerates are allowed to fail, what percentage of future financial earnings will be lost to foreign banks around the world that swoop in to take their business?

3) What percentage of U.S. GDP will be lost in the process?

Look — Hank Paulson was a Republican, but he was not an ideologue. And for all the right wing blather about Obama, and how powerful it makes people feel to say they’ve already given up on him, Obama is a moderate. What Paulson and Obama share is a global awareness — Paulson visited China many, many times and Obama spent years in Indonesia. They understand how quickly the world is changing, and they understand the enormous value of America’s continued position as front-runner. Despite the breath-taking number of screw-ups, we are still the only ones who can take ourselves out of the game.

Even if we don’t recoup a dollar from the government investments in Citi and the like, there is still a quantifiable value to keeping these institutions operational, and there will almost certainly be unforeseen consequences to letting them fail.

]]> By: d4winds http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-149019 d4winds Sat, 28 Feb 2009 13:19:27 +0000 http://www.ritholtz.com/blog/?p=20270#comment-149019 2000 years ago the Treasury's new CAP program was described in great detail: "Ask & ye shall receive." 2000 years ago the Treasury’s new CAP program was described in great detail:
“Ask & ye shall receive.”

]]> By: gloppie http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-149007 gloppie Sat, 28 Feb 2009 04:05:14 +0000 http://www.ritholtz.com/blog/?p=20270#comment-149007 This was commented: "It IS a nationalisation, at this point is not relevant the timing of it if in the future the FEDs will own almost 100%. They do this way not to be called communist." But...isn't the FED a consortium of PRIVATE banks ? It is not communism, it is grand larceny. This was commented:
“It IS a nationalisation, at this point is not relevant the timing of it if in the future the FEDs will own almost 100%. They do this way not to be called communist.”

But…isn’t the FED a consortium of PRIVATE banks ?
It is not communism, it is grand larceny.

]]> By: Jojo99 http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148962 Jojo99 Fri, 27 Feb 2009 22:35:38 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148962 Losers double down. That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.” ===================== But, but, but... Isn't this what nearly every broker recommends on CNBC with "dollar cost averaging"? [lol] Losers double down.

That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.”

=====================
But, but, but…

Isn’t this what nearly every broker recommends on CNBC with “dollar cost averaging”? [lol]

]]> By: CyHastings http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148938 CyHastings Fri, 27 Feb 2009 20:33:12 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148938 "Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats." ~ H. L. Mencken I'm beginning to think Mencken was an optimist. “Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats.”

~ H. L. Mencken

I’m beginning to think Mencken was an optimist.

]]> By: GRV305 http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148920 GRV305 Fri, 27 Feb 2009 19:32:56 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148920 C is down 38% today, so if we had X there yesterday, now we have .62 X I don't know what X was, but it would already have been a lot less than the money put in. If it were my money, I'd be really unhappy. Oh, wait C is down 38% today,
so if we had X there yesterday, now we have .62 X

I don’t know what X was, but it would already have been a lot less than the money put in.
If it were my money, I’d be really unhappy. Oh, wait

]]> By: Brett Tibbitts http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148917 Brett Tibbitts Fri, 27 Feb 2009 19:21:05 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148917 If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents. This is not change we an believe in . . . > It's too early to make such a prediction Barry. Perhaps the US will find out that YES WE CAN DO WORSE THAN GEORGE BUSH If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents.

This is not change we an believe in . . .

>

It’s too early to make such a prediction Barry. Perhaps the US will find out that YES WE CAN DO WORSE THAN GEORGE BUSH

]]> By: rcm http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148887 rcm Fri, 27 Feb 2009 17:22:28 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148887 For mean-reverting assets, adding to losing positions is rational. I would wager a large amount of money that Jim Simons' Medallion Fund occasionally adds to mean-reverting assets/spreads that move adversely (or another way to look at is that one scales into them rather than getting max long or short in one fell swoop). Of course, twenty years ago the world was much less mean-reverting and more momentum-driven, in which case, it was rational NOT to add to losing positions. But the behavior of many assets has since changed. Adapt or die. For mean-reverting assets, adding to losing positions is rational. I would wager a large amount of money that Jim Simons’ Medallion Fund occasionally adds to mean-reverting assets/spreads that move adversely (or another way to look at is that one scales into them rather than getting max long or short in one fell swoop). Of course, twenty years ago the world was much less mean-reverting and more momentum-driven, in which case, it was rational NOT to add to losing positions. But the behavior of many assets has since changed. Adapt or die.

]]> By: formershrink http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/comment-page-1/#comment-148884 formershrink Fri, 27 Feb 2009 17:17:28 +0000 http://www.ritholtz.com/blog/?p=20270#comment-148884 "This is just an exchange of capital for a nearly worthless equity stake." It would be very helpful if someone could explain, for the layman, what is the true cost to the public of this conversion. I'm guessing that, even though the government is not putting in any $$, the taxpayer is losing something. What? “This is just an exchange of capital for a nearly worthless equity stake.”

It would be very helpful if someone could explain, for the layman, what is the true cost to the public of this conversion. I’m guessing that, even though the government is not putting in any $$, the taxpayer is losing something. What?

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