Busted: Bankers and The Global Economy

December 3, 2008

Credit Cards Portend to Lengthen Recession

shooting-foot1The venerable credit card has become a major tool of liquidity for the American consumer next to their own employment. The very tool that retailers and politicians are begging for is the tool most likely to take large hits in the very near future, constraining the U.S. economy at a time when recovery is being dreamed about.

The U.S. credit card industry is preparing to cut back $2 trillion in servicing to avoid the risks of default and to comply with recent regulatory changes. Meredith Whitney of Oppenheimer and Company notes, “We expect available consumer liquidity in the form of credit-card lines to decline by 45 percent.”

The consumer liquidity that business and bureaucratic mavens insist on is due to vanish quickly, further putting a further crunch on the economic crisis and the national ability to recover, at least in a typical “approved” way. Strangely, about the time that many economists are advertising as the end to this recession, in mid-2010, the curtailing of consumer credit will further preclude opportunities to artificially fuel an economic boom using conventional credit lines.

Pulling credit during a time of unprecedented job losses is going to put incredible pressure on the well being of the economy where established authorities are concerned. Lenders are going to be restricted from repricing credit card lines as part of new Unfair and Deceptive Lending Practices legislation. ~ E. Manning

November 23, 2008

Citigroup Saved by Federal Reserve and TARP

citigroup1In headier times a mere six months ago, Citigroup was discussing the sale of assets to raise cash flow and liquidity. With the stock market value of Citigroup plummeting, one of the larger international bank groups has now been saved this morning through the Federal Reserve. This is undoubtedly designed to build confidence in the markets this week as the economy continues to flag amid record job losses in America.

Citigroup is one of the world’s largest owners of toxic collateralized debt obligations (CDOs). This pool of bonds has created one of the largest victims in the financial crisis.

The U.S. Treasury and the Federal Deposit Insurance Corporation is providing liquidity against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the U.S. Treasury and FDIC.

The U.S. Treasury has invested $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred stock with an 8% dividend to the U.S. Treasury. ~ E. Manning

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