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Money In The Bank Yet Too Big To Fail

|Includes:Citigroup Inc. (C)

Often there is a panic and decisions are made hastily. It is easy to show how the banks are able to be reorganized by themselves, go into bankruptcy or even pieces sold off through "recent" history.

In the moment not just retrospect, it has been the opinion of this author that in 2007, Henry Paulson1 should have taken a deep breath and asked for help past the weekend before panicking over the Lehman Brother financial demise & eventual housing/sub-prime (timeline2) crisis. In hindsight, many of the crises could have been avoided but an orderly bankruptcy or at the very least an asset and liability comparisons with sales could have been made. There is a case to be made not to allow tax payers to directly loan or bailout banks but bailing out savings depositors and bondholders always seem to be the prudent thing to do. The bailing could/should be done by the sales of assets/liabilities, even in the case of the RTC which took 5-6 years, would be a more prudent approach even if time consuming.

  • Continental Illinois (1984) "Too Big To Fail" came to life. Until 2008 (Washington Mutual) this was considered the largest bank failure in American history despite FDIC rescuing depositors & bondholders.3
  • Resolution Trust Corp (RTC) (1989-1995) 4
  • In the third quarter of 1991, Citicorp disclosed a loss of $885 million.5 They survived that and more. Each rebound seems to have about or around a 10yr lifespan. (C chart)
  • List of 2007 write-off & collapses6 and yet there are still large or mega-banks surviving ... research for throughout banking history if you need more citations.

The banks large and small have standard deposit protection and the rest should be dealt with in the best expediency possible along with including the market. Here is a perfect example of rules & regulations are needed, should be adhered to, as well as enforced but not so much to constrain commerce or restrict free market capitalism.

While I don't always agree with his conservatism, I do have to thank Larry Kudlow (wiki) for teaching me plenty about money and constantly pointing out, "Free Market Capitalism is The Best Path to Prosperity" but "never forget to do it with honesty & integrity".

If full links wanted;

1.http://www.newyorker.com/talk/financial/2007/12/17/071217ta_talk_surowiecki

2. http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline#1990.E2.80.931995

3.http://en.wikipedia.org/wiki/Continental_Illinois

4.http://www.referenceforbusiness.com/encyclopedia/Res-Sec/Resolution-Trust-Corporation-RTC.html#b

5.http://www.businessweek.com/chapter/zweigch.htm

6.http://www.creditwritedowns.com/2008/04/global-bank-write-offs-and-failures.html

Larry Kudlow wiki page

Disclosure: I am long C, GS.

Stocks: C