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Citgroup is not a bank - it contains multiple non-bank and non-US bank parts.

The bank parts are the only important parts. Take them over and let the rest burn to the ground.

And if you can't tell whether a bit is part of the bank part or not, take it over and find out. After you've figured it out, dump it back on the shareholders if it wasn't. If you can find an almost legal way to loot it before you do so, all the better - defrays the cost of the operation.

Is that legal? I don't know. But neither does anybody else, and by the time the courts are done with it, you have a fait accompli.

FDIC practice is to take over as it sells the bank assets to an existing bank  - and there were no candidates to absorb Citi.

Then play dumb. Take it over and try to sell it. You're allowed to do that. When nobody shows up to buy (as you knew would happen), you're stuck with it. Since you're stuck with it anyway, you'll have to hold it. And simply holding it would be grossly irresponsible, so you have to manage it while you hold it. And part of proper management is to sort out the good from the bad and dismantle the bad. Mission accomplished.

You're authorised to take it over, and while holding and managing it might technically exceed the FDIC's authority, I'd dearly love to see the court that would order the FDIC to hand it back to the original owners, where it would instantly lapse into bankruptcy...

And doing so would have caused the enclosing corporation to crash with no regulatory authority to take it over and manage it.

So what? The holding company is a parasite that needs to be shot in the back of the head and dumped in a shallow grave.

As for "no regulatory authority," I've got two words for you: Chapter 7. Maybe an expedited Ch. 11 for the bits that you want to survive.

And the record shows these FDIC takeovers have usually cost the FDIC about 20% of assets, which would have been a whole lot more than the US has actually spent on Citi.

Hire a couple of European central bank staffers who actually know how to serve the public rather than (or at least in addition to) the banks.

Oh, and you're conveniently omitting the systemic, political and macroeconomic costs of having a huge zombie bank running around.

So: aside from FDIC receivership being, partial,impractical, panic inducing, and vastly more expensive, it would have been a great idea.

Partial is not a problem when the parts you take over are the important ones. Impractical is only true if you declare from the word "go" that the nuclear option - Ch. 7 for the entire goddamn Street - is off the table. Once that's back on the table, the practical problems disappear. Panic is not a problem as long as you preserve the core monetary functions - which FDIC is authorised to do. And I dispute the way you count expenses.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 10:45:06 AM EST
[ Parent ]
"Hire a couple of European central bank staffers who actually know how to serve the public rather than (or at least in addition to) the banks."

Are you serious? If Geithner had not bailed AIG, half of europe's banks would have crashed on the spot triggering a massive panic.

by rootless2 on Sun Dec 20th, 2009 at 10:50:22 AM EST
[ Parent ]
No. Half of Europe's big banks would have been taken into receivership (because Europe actually has very sensible policy of vesting standing authority in various regulatory bodies to take insolvent financial institutions into receivership). A handful of smaller banks would have been killed off too, but nothing catastrophic.

Villager concern trolling notwithstanding, Frankfurt, London and New York are not the be-all-end-all of the banking system.

And Villager concern trolling notwithstanding, there is nothing that prevents the state from decisively stopping a cascading bank failure under existing law. All it requires is a willingness to tell the shareholders, the management, the hedge funds and a couple of the transnationals to take a long walk on a short pier. In short, to bankrupt a couple of score Villagers rather than bankrupting the country.

But I can see why that might be too strident and uncouth to ask demand that of our political class.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 10:58:15 AM EST
[ Parent ]
I've seen the results of Europes "sensible" bank policies. They look even worse than the American experience. Giant reckless real-estate bailouts in
Germany. Feckless bets on US junk mortgages in France. The English - let's not even go there. Have you heard of Ireland? Small nation in the west of the EU - just completely bankrupted the country to bail out banks. What about sensible Iceland? Do you even know about the Belgian banking collapse?

But of course, the first to collapse would have been the Eastern European state banks that got Lehman crap foisted off on them by Societe General and friends.

"All it requires is a willingness to tell the shareholders, the management, the hedge funds and a couple of the transnationals to take a long walk on a short pier. In short, to bankrupt a couple of score Villagers rather than bankrupting the country."

That's a strikingly ignorant statement. Seriously. A sane bank regulator, no matter how stupid, looking at the situation in 2007 and not worrying about a global crash and escalating depression would have been worse than corrupt.

by rootless2 on Sun Dec 20th, 2009 at 11:31:50 AM EST
[ Parent ]
I've seen the results of Europes "sensible" bank policies. They look even worse than the American experience.

The Bundesbank and the Spanish central bank have done about as good a job as can be done under the circumstances. The examples you pull out are due to the insane market fundies in our parliaments more than the regulators.

Whether they have managed to mishandle it more grossly than their American fellow faithful is something that will not become apparent until we begin to pull out of the depression.

A sane bank regulator, no matter how stupid, looking at the situation in 2007 and not worrying about a global crash and escalating depression would have been worse than corrupt.

Newsflash: We got a global crash and escalating depression. Destroying Wall Street could hardly have made the crash worse, and it would have removed a significant part of the opposition to sane and responsible fiscal and monetary policy going forward.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 02:36:43 PM EST
[ Parent ]
Newsflash: We got a global crash and escalating depression. Destroying Wall Street could hardly have made the crash worse, and it would have removed a significant part of the opposition to sane and responsible fiscal and monetary policy going forward.

- Jake

To you the difference between 10% unemployment and 30% unemployment may be nothing, but to me it's significant. Sue me.

by rootless2 on Sun Dec 20th, 2009 at 02:42:54 PM EST
[ Parent ]
"The Bundesbank and the Spanish central bank have done about as good a job as can be done under the circumstances. The examples you pull out are due to the insane market fundies in our parliaments more than the regulators."

Snort. Look up "regulatory arbitrage" and "europe" in a search engine.

by rootless2 on Sun Dec 20th, 2009 at 02:44:55 PM EST
[ Parent ]
Uhm, you have around 20 % unemployment at the moment if you count it the same way Europe does...

And you have no serious countercyclical fiscal policy in sight.

Breaking the banks might have gotten your unemployment up to 25 or 30 % for a year or two, but on the other hand you would have destroyed a significant part of the obstructionist opposition to the policies that could cut years off the depression.

Whether ten years at 20 % is preferable to one or two years at 30 % is, I suppose, a matter of taste...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 02:49:34 PM EST
[ Parent ]
I mean 25% unemployment in Europe after the collapse of the central banks of hungary, poland, and baltics. But I bet you think that those EU central bank regulators could have patched it right up.
by rootless2 on Sun Dec 20th, 2009 at 03:29:18 PM EST
[ Parent ]
Hungary's problems are not nearly as serious as you think.

The Baltics are fucked because their politicians are neoliberal fundamentalists. No central banker in the world can save you from neoliberal politicians. (But no, the Baltic central banks have not impressed me.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 03:33:40 PM EST
[ Parent ]
"The bank parts are the only important parts. Take them over and let the rest burn to the ground."

So you call up China and Singapore and Saudi Arabia say: btw, all the sovereign funds you put into Citi - zero. No we don't have legal authority. And call Japan and tell them  we're liquidating the largest brokerage  in Japan, fuck you. And tell Eastern Europe - you're on your own.

That's really not going to work.

by rootless2 on Sun Dec 20th, 2009 at 10:56:09 AM EST
[ Parent ]
They are perfectly free to handle those remaining entities as they please. But the US has no obligation under domestic or international law to safeguard the profits of speculators who vested their funds with insolvent institutions. The citizenship of the speculator in question is irrelevant.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 10:59:57 AM EST
[ Parent ]
Of course it does, in practice. After 8 years of Bush's borrowing splurge, the US is so in debt that it cannot afford to alienate its foreign bankers.
by rootless2 on Sun Dec 20th, 2009 at 11:33:24 AM EST
[ Parent ]
The Bush Memorial Debt is largely irrelevant to the issue at hand. Bush's deficit affected in the main the federal debt, not the US national debt, which is run up due to your structural current accounts deficit. Which has been one of the most bipartisan efforts on record.

China could hurt the US, and a couple of oil states could hurt the US. But the oil states are American clients and with China the debt is the tail, not the dog. The dog is the Chinese ForEx policy, which wouldn't be materially altered by a debt writedown.

And anyway, if foreign creditors need to be bailed out in order to maintain sound foreign relations (a case can be made for that), then all he has to do is ask Congress for funds for that. It would have been cheaper than TARP and QE.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Dec 20th, 2009 at 02:45:57 PM EST
[ Parent ]
rootless2:
it cannot afford to alienate its foreign bankers.

and that's why barack didn't give the time of day to the dalai lama, i bet.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Dec 21st, 2009 at 06:45:19 PM EST
[ Parent ]

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