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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
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