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Good Bank, Bad Bank: The Rich Win Again

 January 16, 2009 10:55 AM

So let's see if I understand this brilliant brain fart correctly…

Citigroup (C) and Bank of America (BAC) reported earnings so dismal it gave momentum to the whole "Bad Bank" plan. The plan would split the walking dead into a "Good Bank" and a "Bad Bank". Investors of course would only be exposed to the "Good Bank". The government would purge the banks of all the illiquid toxic assets and place those in the "Bad Bank". Taxpayers would own the bad bank.

Translation: People with money, so the wealthier component of society would continue to have a stake in the "Good Bank" via investments in common, preferred, or bonds. They would be exposed to all the upside potential. The people with the least amount of money, the average taxpayer who doesn't have the money to even buy a handful of shares, would get all the downside risk. They will fund the losses via higher taxes without the benefit of being long the "Good Banks" as an offset. The middle class gets raped again… as expected. Amazing.

The rich own the "Good Banks" voluntarily and the poor own the "Bad Banks" by dictate. The rich win again. What a fun game.

Citigroup Reports $8.3 Billion Loss, Split Into Two Businesses: "Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, as the credit crisis eroded mortgage-bond prices and customers missed more loan payments. The stock rose after the company announced plans to split in two.

The net loss of $1.72 a share compared with a loss of $9.8 billion, or $1.99, a year earlier, the New York-based company said in a statement today. Excluding a $3.9 billion gain from the sale of a German consumer bank and other results from discontinued operations, the bank's loss was $2.44 a share. On that basis, the loss was more than twice as wide as the $1.08 average estimate of analysts in a Bloomberg survey.

As Citigroup plunged 77 percent last year in New York trading, the bank was forced to accept $45 billion of U.S. government rescue funds. Chief Executive Officer Vikram Pandit agreed this week to cede control of the Smith Barney brokerage to Morgan Stanley. He also said today he plans to eventually sell the CitiFinancial consumer-lending unit and Tokyo-based Nikko Asset Management Co., after moving them into a new unit called Citi Holdings.

"It looks like a kitchen-sink quarter," said Peter Sorrentino, who helps manage $16 billion at Huntington Asset Advisors Inc. in Cincinnati, including Citigroup shares.

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iOnTheMarket Premium


1/21/2009 8:35:28 AM
investor by Jim Gill
I would like to know -if the royal bank of scotland is nationalized where would that leave the bond holders? would they still get their dividends,or would they stop paying them?

thank you-
J. Gill
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