PEB

Citibank-Paulson's Culpability!

How Treasury Secretary must be regretting his utterances of last week. No sooner had he finished saying we've stabilized the banks, than the second biggest bank by assets is pressured and has to be bailed out. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The Treasury Secretary seems clueless. Citi's woes i think can be traced back to his comments of last week. The markets did not like the idea of putting up the TARP shutters, neither did day like the about face on the purchase of toxic assets. The 60% decline in Citi's stock price was the market venting its displeasure and increasingly that displeasure is aimed at the Treasury secretary.

A Govt Bail Out for Citi.

 

A Very Interesting Development - France Goes Protectionist

President Nicolas Sarkozy on Thursday earmarked €20bn ($24bn) for a new state investment fund to protect France’s strategic industrial assets from the credit crunch or foreign takeover.

The new fund – to be managed by Caisse des Dépôts, the state-backed finance house – would be among the 20 largest long-term investments funds in the world, Mr Sarkozy said.

EDITOR’S CHOICE

France defies recession expectations - Nov-14

France says deficit breach is looming - Nov-06

Leftwing French district falls into red - Nov-04

Sarkozy leans on banks over lending - Oct-30

Sarkozy reverses stance on subsidised jobs - Oct-29

Weak economy hits Paris bid to cut deficit - Sep-26

But, only €6bn ($8bn, £5bn) of the €20bn will be in cash for immediate investments, the rest being largely publicly held shareholdings that are unlikely to be sold in the short or medium term.

Mr Sarkozy said the new fund would have two functions: help companies that could not find finance for their investments because banks were too “timid” and safeguard the capital of “strategic businesses”.

“The day we stop building trains, aircraft, cars and ships, what is left of the French economy?” the president said in a speech in Montrichard, in the Loire valley. “I will not turn France into a reserve for tourists.”

Goodbye Yugo

''The Yugo was not a car which would amaze the driver. But it did answer the needs of an average driver in this market and that's why Yugo has its place in this country and that is why many will be sorry to see it go.''

When it was launched in 1980, the Yugo was the pride of the former socialist state and it was exported to more than 70 countries.

Critics said it barely qualified as a car but around 70,000 were sold in the UK and more than double that in the US.

The Yugo factory was bombed during the 1990s and never really recovered from Serbia's years of international isolation.

Goodbye Yugo

Paulson's Shift Makes for Ugly Reaction

US mortgages and credit markets on both sides of the Atlantic have been severely jolted since the US Treasury turned its back on plans to use some of its $700bn in financial bail-out funds to buy troubled assets from banks.

More than a week has passed since Hank Paulson, the Treasury secretary,changed the parameters of the troubled asset relief programme (Tarp). Yet despite Mr Paulson’s insistence to Congress this week that policy actions were starting to bear fruit, the picture on the ground in the credit markets has turned uglier.

‘It is tremendously difficult to trade when the rules of the 
game change’

The realisation there are no other buyers for some of the toxic assets the government has decided not to buy has led to a sharp fall in the value of mortgage-related assets and a wave of renewed selling. Some large investment funds had bought mortgages expecting the Tarp would help to shine a light on the market and establish a clearing price.

“Now those markets will go back to being completely illiquid as there will be no price discovery process started by the Tarp,” says Jay Mueller, portfolio manager at Wells Capital Management. “It is tremendously difficult to trade when the rules of the game change.”

Ugly Reaction

Citi Aims to be a Long Term Winner

“We will be the long term winner in this industry.”

Vikram Pandit’s claim that Citigroup, the US financial services group he runs, will overcome its current plight and emerge victorious from the current financial turmoil sounded more like a wish than a firm promise.

EDITOR’S CHOICE

Citi cuts 52,000 more jobs - Nov-17

Video: Francesco Guerrera on Citi job cuts - Nov-17

Lex: Citi slashing - Nov-17

Slideshow: Pandit’s presentation - Nov-17

Citi’s cuts fuel fears of more pain - Nov-17

In depth: Finance job cuts - May-01

In fact, shortly after his pledge – made on Monday at a “town hall” meeting of Citi’s worldwide staff – Mr Pandit doled out the bitter medicine the company will have to take if it is to stem the rot of four consecutive quarterly losses.

As some of his soon-to-be ex-colleagues listened in Citi’s New York headquarters and on the internet, Mr Pandit said the company would cut a further 52,000 jobs, bringing its total redundancies since January to 75,000 and slash its $62bn expense budget by $10bn.

“We entered 2008 with more people, more businesses and more assets than fit our strategy,” was the stark assessment made by Mr Pandit, who took over in December 2007 after Chuck Prince was forced out by the weight of Citi’s writedowns.

Long Term Winner ....After the Slash and Burn!

The “financial system itself” ...

Some of the world’s top-earning hedge fund managers told Congress on Thursday that they broadly agreed that largely unregulated financial vehicles ought to be subject to greater disclosure, though they warned of excessive regulation.

The statements by George Soros and others suggested that hedge fund executives and lawmakers were reaching a consensus in the wake of the credit crisis that the status quo, in which the funds largely escape scrutiny, was no longer tenable.

EDITOR’S CHOICE

In depth: Hedge funds - Jan-15

FT Alphaville: Hedgies on the Hill - Nov-14

All friends together in committee hearing - Nov-13

George Soros testimony - Nov-13

John Paulson testimony - Nov-13

Philip Falcone testimony - Nov-13

“We have moved out of the mode of ‘to be or not to be’,” said Democrat Eleanor Holmes Norton on the inevitability of new regulations.

The hedge fund managers received a mostly warm reception at the hearing of the House Committee on Oversight and Government reform – in stark contrast to the tough questioning that greeted Dick Fuld, theLehman Brothers chief executive.

But the hedge fund managers nevertheless emphasised that they were not culpable in the financial meltdown. Mr Soros pinned blame on the “financial system itself”, while James Simons, president of Renaissance Technologies, criticised credit ratings agencies, which he said had facilitated the sale of “sows’ ears … as silk purses” through “fanciful” ratings of mortgage-backed securities.

the system itself

Phil Gramm is Unapologetic

WASHINGTON — Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

The Reckoning

Free-Market Champion

Articles in this series are exploring the causes of the financial crisis.

Previous Articles in the Series »

Related

Gramm and the ‘Enron Loophole’

A look at how Enron closely monitored Senator Phil Gramm’s handling of 2000 legislation that offered it a loophole fending off regulation.

Times Topics: Phil Gramm

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The senator often spoke of his mother’s buying their home.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisisthat has rattled the nation.

No Apologies

Bond finds 'Solace' in $70.4M box office debut

"Quantum of Solace," with Daniel Craig returning as Bond for the first direct sequel in the spy franchise, pulled in nearly $30 million more over opening weekend than its predecessor, 2006's "Casino Royale," according to studio estimates Sunday.

Solace.

Capitalism Hits The Fan-A Marxian View

Rick Wolff - Capitalism Hits the Fan

Paulson Shifts

As the magnitude of the financial crisis has increased following Congress' passage of the $700 billion bailout plan, the feds have shifted their strategy. On Wednesday, Treasury Secretary Henry Paulson said the government would use the bailout funds to flush capital into the banks — not to buy up bad mortgage assets through the Troubled Asset Relief Program, or TARP, as originally declared.

The reason for the shift, Paulson told NPR's Robert Siegel, was that it was a "more powerful and quicker way to deal with the problem."

"Seven hundred billion [dollars] wouldn't go far enough in my judgment," Paulson said. "So you get much more leverage by putting capital into the banks. What we were looking to do was to stabilize the system and encourage banks to lend more. And the quickest and most powerful way to do that was with capital."

If the banks have capital, Paulson said, it's "easier for them to write down the value of the securities and to sell them."

Paulson Shifts