Posts filed under “Really, really bad calls”

Good Money After Bad: U.S. to Up Citi Stake

Here we go again:

It looks like you and me and that guy behind the tree are going to be on the hook for a few billion more dollars:

“Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. The proposal was made by Citigroup to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks.

The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup’s share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their shares diluted.”

I don’t for a minute believe it wont cost taxpyers more money — we are that much more involved with Citi — so we would have to rescue them.

Let’s see if Rick Santelli decides to rant about this also . . .

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UPDATE: February 23, 2009 5:56am

Note that the FT has a very different take on this:

Citi presses officials to take 40% stake

Citigroup is pressing the US government to agree on a new capital injection that would increase the authorities’ stake in the troubled bank to about 40 per cent but stop short of an outright nationalization.

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Source:
U.S. Eyes Large Stake in Citi
DAVID ENRICH and MONICA LANGLEY
WSJ, FEBRUARY 22, 2009, 8:30 P.M. ET

http://online.wsj.com/article/SB123535148618845005.html

Category: Bailouts, Corporate Management, Credit, Politics, Really, really bad calls

Experts, Crashes, Media, Skepticism

There is a surprisingly interesting article at Money Magazine on why so many so-called experts utterly missed the market crash, credit crisis, and housing collapse. Its an interview with Philip Tetlock who is (with no small amount of irony), an expert on experts. He is a professor of organizational behavior at the University of California-Berkeley’s…Read More

Category: Economy, Financial Press, Markets, Psychology, Really, really bad calls

Synchronized Boom, Synchronized Bust

Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that. Excerpt: “As a consequence of this expansionary cycle, the…Read More

Category: Bailouts, Really, really bad calls

If Bankers Were Firemen . . .

Very amusing Pat Bagley cartoon, via The Salt Lake Tribune > > http://extras.sltrib.com/bagley/Archive.asp?Vol=content&Num=10

Category: Bailouts, Credit, Derivatives, Humor, Markets, Really, really bad calls

A Cyclical Look at P/E Ratios

Here’s another brutal look at where P/E rations might end up going before this is all over, via Bob Bronson: I am very skeptical of earnings forecasts, because they have been so terrible for most of my adult life. The conspiracy of optimists always seems to overestimate future earnings. Trailing earnings are real data, not…Read More

Category: Earnings, Markets, Really, really bad calls, Technical Analysis, Valuation

Failings in Structured Finance Agency Conflicts

As we begin to address regulatory reform in the financial services industry there is a clear consensus view that the credit rating agencies played a role in fomenting the crisis environment. In February 2007, Joe Mason and I presented a paper warning of the risks that CDO market problems would present in the capital markets…Read More

Category: Credit, Derivatives, Finance, Markets, Real Estate, Really, really bad calls, Research

Barron’s vs. Cramer, Part II

We add another chapter in the ongoing debate between Barron’s, the weekly paper that is sister to the WSJ, and James Cramer, the former hedge fund manager now turned pundit/CNBC star/game show host. The back and forth between CNBC and Barron’s amounts to an absurd debate over what Cramer’s stock picking record on the show…Read More

Category: Financial Press, Hedge Funds, Really, really bad calls, Television

Barron’s vs. Cramer: The Charts

Barron’s observes: “By most measures, Jim Cramer did worse than the market, but CNBC and the TV journalist have taken few steps to clarify his exact performance for his show’s growing audience.” Here are the charts Barron’s uses to make their argument:

Category: Digital Media, Financial Press, Really, really bad calls, Television

Greed + Incompetence + A Belief in Market Efficiency = Disaster

I love this excerpt from GMO’s quarterly update, by Jeremy Grantham: > 1. The Story So Far: Greed + Incompetence + A Belief in Market Efficiency = Disaster “Greed and reckless overconfidence on the part of almost everyone caused us to ignore risk to a degree that is probably unparalleled in breadth and depth in…Read More

Category: BP Cafe, Credit, Markets, Really, really bad calls

Bust, Bankruptcy, Bailouts: What Should We Do Now?

I am speaking at an AEI panel today, with Tim Bitsberger,  Joshua Rosner of Graham Fisher & Co., Walker Todd, of the American Institute for Economic Research, and R. Christopher Whalen of Institutional Risk Analytics. Summary: The credit crunch and financial panic of 2008 triggered a remarkable series of government interventions and bailouts, including huge…Read More

Category: Bailouts, Credit, Derivatives, Politics, Really, really bad calls, Regulation