The Long Crisis

Posts Tagged ‘Citigroup’

The “too big to fail” mantra heard from the government so far about the terrible events that would unfold in the event of a big bank failure seems to be changing. Now the government seems to be hurriedly making preparations for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans’ bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill — the Depositor Protection Act of 2009, is being sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho.

“This mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system,” Bernanke wrote in a Feb. 2 letter to Dodd.

It appears that the too big to fail statements may have to be retracted by government officials as a result of market events. With Citigroup breaking the buck last week, and so far today posting a low of $0.99, time may be short to get the emergency FDIC big bank $500 million borrowing bill into place.

“Too big to fail” may soon be a concept that has failed. The cost of keeping zombie banks alive is becoming just too great. Another factor is the public outrage at the government action of pouring billions of dollars into trying to save rotten to the core institutions at a time when so many Americans are hurting. The good old boys in Washington handing out billions of dollars to their Wall Street and banking buddies is a scenario that is no longer acceptable to most American taxpayers and voters.

The politicians in Washington are very much aware of this public backlash. A big bank failure is now more likely as the politicians sense that another round of bailouts may tip the public into a fury of protest. We may soon know what the failure of a too big to fail bank will really mean for the real economy. The Long Crisis may bring down nearly all of the big banks within the next couple of years.

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Fidelity Investments is the world’s largest mutual-fund company. In the fourth quarter of 2008 Fidelity made an ill timed horrible investment in Citigroup Inc. which more than doubled its stake in the troubled giant bank. Citigroup stock has declined by 63 percent so far this year.

This investment by a seasoned manager with a famous mutual fund indicates just how dangerous to your financial health trying to bottom pick markets can be in a Long Crisis. No one alive has seen a worldwide financial crisis of this magnitude. Stocks that look like they may have reached the bottom, like a beat down Citigroup, may in fact be on their way to being worth a big zero.

Other stocks in the same boat with Citigroup are Bank of America, GM, and Chrysler. Should some disaster happen in the oil patch, say a terrorist attack on Saudi Arabian oil facilities, the resulting run up in crude oil prices would finish off the airline and international travel industries.

Oil stocks in companies with large reserves and strong balance sheets, and silver and gold mining stocks in companies with enough cash and reserves on hand to take advantage of rising precious metals prices, are in fact the only stocks that I presently feel deserve attention and investment during this continuing financial meltdown. Even beaten down high quality oil stocks, like Petrobras (PBR) may be pulled down further by deteriorating economic conditions.

It really is not wise to be bottom fishing in a Long Crisis environment. When a seasoned money manager loses within a few months almost one billion Dollars of investors money buying an already beaten down stock like Citigroup you should be aware that present meltdown conditions are probably going to create extreme investment situations and marked down stock evaluations that we can not at this time even imagine.

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