Saturday, February 28, 2009

Roubini : Why the US should just nationalize the banks!

Yesterday nervousness again in the financial markets around the world - worries aplenty. Besides the recession, there is this perpetual worry of bank nationalisation and the shock of watching Citibank stock drop 20% or 30% a day, has a way of shaking confidence.

I was watching this video of Roubini [Link] and there is this thing he said that is quite surprising. Citibank & Bank of America's stock has fallen so much that if both these components of the DOW are completely wiped out by nationalisation, it will only take 50points off the DOW - that is less than 0.8%. One thing they can do is remove these from the index and replace them with other stocks.

Nationalisation is actually becoming no big deal except for the overly optimistic shareholders who keep clinging on to these stocks as they fall. But these stocks are simply going to just fall until there is no choice but for the US govt to takeover clean them up and release them to the market. Even if they don't do that, the US govt has to inject cash and dilute existing shareholders. There are many problems with Citi and BoA, just yesterday the BoA released an SEC statement to say that its loan portforlio is overvalued by US$44B[Link] (i.e. it is worth $44B less than carried in the books) - the capitalisation of BoA is only US$19B!

GIC should get out of these stocks. They are too risky for Singaporeans' hardearned money and the risk of a complete wipeout is not insignificant. It would have been simpler if they had simply admitted that it was a mistake investing in these bad banks and proceeded to correct those mistakes. Instead they insisted that they had made no mistakes and these are long term investments that are to be kept for 20 or 30 years. If these banks go down, they will lose credibility....why should we ever trust them with our money?!

17 comments:

Onlooker said...

"If these banks go down, they will lose credibility....why should we ever trust them with our money?"
Because we must contribute to the tontine money fun by LAW.
And the "Elites" are not that bright even if they think they are.
BTW where is the elder stateman Adviser for Citigroup when they need him?

Anonymous said...

imho, they have already lost all credibility when it comes to investing our hard-earned money!

accountability!!! heads should roll!

Taishan said...

....why should we ever trust them with our money?"

Most apt.
We shouldn't trust with our money nor our well being nor anything at all.
When power gets into their head compassion runs out.

Anonymous said...

The first step towards cutting loss is the admission that their judgements and decisions were off course in the first place.

Now, they are still insisting it was the most well judged long term investment decision and everyone else is just plain wrong.

So, how can they get out of these stocks if they believe they made the right decision?

Lost Citizen

Anonymous said...

Two priests and a rabbi were discussing what portion of the weekly collection they kept for themselves. The first priest explained that he drew a circle on the ground, stepped a few paces back and pitched the money towards the circle. What landed in the circle he kept and what landed outside the circle god kept.

The second priest claimed that his method was almost the same,except that what landed outside the circle went to the priestand the money that landed inside the circle God kept.

The rabbi said, "I've got you both beat. I throw the money into the air and what god wants, God takes."

a kind of chicken said...

let me add to what lucky is saying. according to Krugman (google his new york times articles) many of the us banks have more debt than assets. ie are worthless.

any share holder value currently present is based on the hope than the us govt will gift money to the banks.

what our dear govt is doing is betting a few billion dollars that the US govt will make such a gift.

if the money offered by the US govt is not a gift, we will be totally wiped out.

For te sake of international reputation, to encourage investors, etc, the US govt might actually make such a gift...

But I think we should all be clear. The bets on citi are a gamble, not a long term investment.

Anonymous said...

IT IS REALLY ABOUT ECONOMIC WAR AND PREDATION

There is no much left of GIC & Temasek $billions investment in these banks now, even if they try to withdraw. I just hope that the PAP fools will not put more money in, but who can tell. Things must always come to a head before political change can happen,

Anyway, I think right from the start the US already planned it to default on its astronomical national debts to other nations such as it acquired through its trade deficits.

The other nations like China had bought up countless $billions of bank instruments like housing mortgages with its trade surpluses.

If the big US banks had been allowed to continue, it would mean the US will in the foreseeable future become the property of these other nations.

What better way to nullify this effect than to engineer the artificial collapse of its banking industry. Why, what so difficult for the money cabal & US govt to start up new banks after some of the selected old ones are gone?

Anyway, even after such a drastic move of collapsing the banking industry, now they are still putting out frightening stories, which I believe is just designed to push all the stock markets further down so that the money cabal of the US can then scoop up the cheap shares.

If things were really so bad in the US, why then the US dollars actually appreciated instead of depreciated over this last 1 year of turmoil. Just think.

But of course they will tell you that is because a lot of money was withdrawn from the stockmarket and converted into US dollars. You believe that? C'mon.

The US looks after itself in cold-blooded fashion as always. Only a complete fool like Lee Kuan Yew and Ho Ching believed they were buddies. They got scammed big time at the people's expense.

It's really too late to do anything now. The moment the money went in, it was already theirs.

Nationalisation, part nationalisation or total bankruptcy of those banks, it will all be worked out in the complete interest of the US.

But, but ... if US goes too far, the other great powers might turn the table on them by simply dumping all their reserve of US dollars at one go!

Then the US will really become a poor nation. The US must beware, don't go too far thinking there are no challengers.

It is really about economic war and predation on a global scale. This is how I see it now.

Anonymous said...

Anon 7.19 pm

Ya hor, how come US$ has become stronger vs S$ since the crisis? Don't tell me our gahmen print more and faster S$ than the US Gahmen? By right due to their deficit, US is a bankrupt debtor nation, yet its currency is still strong and respected all over the world.

Something is not quite right with the world financial system.

Very cheem and very scary.

Anonymous said...

How much will the national reserves be hollowed out before there will be a serious internal review let alone a rebellion?

Like may be when 80% of the national reserves are lost before anyone inside dares to make some noise? By that time, you higher pappies would probably start packing your bags to flee Singapore, you won't have a chance to rectify the situation anymore.

But wait, it is easy to see one reason LKY instituted multi $million salaries for themselves was to forestall any desire on the part of high-level pappies to question him. In others make them into "political eunuchs" to borrow a word from the late JBJ.

Why would one want to risk his super income just to set things right. Set things right. Alas, that's exactly what they are appointed for!

But Tharman did the coup de grâce that finished off any such conscionable thinking when he said in Parliament in no uncertain terms : How GIC and Temasek invested and performed was none of his business.

I see, Finance Minister who is in charge of the country's money is not concerned one bit whether they lose or not. He is just put there as a figure head just like that utterly useless President paid near to S$300K a month who is also supposed to look after the reserves. Costly parasites!

It seems everyone in PAP is quite happy with the situation and here we are ordinary citizens making so much noise. For what?

Perhaps that is because we & our children have more at stake while the rich pappies can jump ship anytime. I bet many if not all of them already have their properties and money well shipped out in some country just in case things begin to fail.

Let them run; but if they say they are not of that kind, then do something NOW, even if you have to remove the old idiot on the grounds of senility.

Anonymous said...

Singapore is a blessed country.

We get our warnings from up above.

The eclipse of the sun on 1st day of CNY - 1st Omen;

28 Feb 2009 our Mythical Sealion's head was struck by lightning - 2nd Omen;

This could be a warning for our mythical MM, who bankrupt the nation?

Or is it a warning to Singaporean to wake up or face the consequences.

Anonymous said...

I would like to quote the following GIC statement made to FT regarding Citi preferred conversion:

http://www.ft.com/cms/s/0/59967684-04fe-11de-8166-000077b07658.html?ftcamp=rss&nclick_check=1

"GIC said it would only suffer a 24 per cent paper loss on the conversion based on Citi’s closing share price on Thursday of $2.46..."

On Friday's closing after the deal was announced, Citi stock closed at $1.50. At that price, the loss is 55%.

Note that even at $1.50, the price mostly reflects the "Geithner" put, not the real worth of Citi which is zero for all practical purposes. To invest in hope that the share price recovers somehow is wishful thinking. It is no different than the gambler at the poker game doubling down to recoup his previous loss.

While the "Geithner" put still worths something, perhaps it is time to cut your losses and move on.

Spinning like the above quote is self deluding. It is the same as the other recent FT letter from PM secretary on Temasek's performance. In the letter, he quoted (great) performance numbers from inception up to March 2008, which is almost a year ago! Perhaps the recent performance numbers are not so great?

Anonymous said...

why is US$ dollars getting stronger when USA is bankrupt?

It is not that difficult lah,CONFIDENCE,people still have confidence in Uncle Sam,and Uncle Sam can justifiedly proclaim,if not me,who?

Communist China,the rising star?Russia whose oil money is evaporated?

Anonymous said...

Lucky what do you think about the FT article (as referred by Anon 3:45 AM)?

Wah GIC is so happy about the conversion from preferred to common shares as though it has struck a big lottery.

The truth is revealed in the same article:

"Sovereign wealth fund executives that put money into Citi expressed frustration. “They are not paying a dividend and have put the preferreds in a tough position,” said a senior executive with one fund that supplied Citi with capital."

It's finished lah, GIC, stop day dreaming any longer.

Now we know how stupidly clever Lee Kuan Yew and his ministers are!

Anonymous said...

Let's face it, the leegime has lost billions. Wiped out, gone! While the middle east funds can always fall back on their oil revenues to recoup their losses, what does SG has?

Leegime and its cronies and sycophants are incompetent, they are fooled, they are conned. The continued presence of the old fool is suffocating the nation and preventing good people and real talens to step forward to serve.

Anonymous said...

"Ya hor, how come US$ has become stronger vs S$ since the crisis?"

USD is a currency of choice for trades and holding of debts + foreign reserves + unofficial dollarisation of quite a no. of third world economies, etc, etc. The demand of USD is always stronger in respect to most currencies.

If your own USD holding is reduced in relation to SGD vis a vis holding of other currencies, what will you get. Basic.

Now back to the question, how does USD holding get reduced and if you still need more for various reasons. Well, ...........

Anonymous said...

A minister was asked by a politician, "Name something the government can do to help the church."

The minister replied, "Quit making one dollar bills."

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