After laying into Vikram Pandit about the size of Citigroup (NYSE:C) yesterday, and the need to take steps to shrink the company down to levels where they aren’t a hazard to the rest of the country, it got even more interesting. as the congressional oversight panel got a change to grill Herbert Allison on the reason Citigroup had received $45 billion in bailout funds, and why there is an implicit agreement between the Treasury and banks that the government will step in to keep them running.
According to Allison, there is no such agreement in place (laughter in the background), and he even denied the financial institutions in some case get financial benefits from receiving the funds. Can anybody say executive bonuses?
The idea of bailing out banks also encourages them to continue on with their reckless behavior at the expense of the American people.
“There is no ‘too-big-to-fail’ guarantee on the part of the U.S. government,” Allison said, who is the overseer of the $700 billion in bailout funds of the Treasury.
Others on the five-member panel were frustrated with response by Allison on other issues, and in some cases Allison refused to answer or address what was being put forth to him. With Citigroup he wouldn’t admit they were on the verge of collapsing if the Treasury hadn’t propped them up.
Elizabeth Warren, who is lead on the panel, stated clearly that the market definitely assumes that too big to fail is a part of the banking industry, and said, “The market clearly perceives that there is a too-big-to-fail guarantee. That gives Citi an advantage in raising capital. … That is very valuable to Citi.” This was a nod toward how it can be profitable for banks to have guarantees they won’t fail from the U.S. government.
The bottom line in all of this is it doesn’t bode well for the country when Allison can literally go up and deny what everyone knows is true in front of this watchdog panel. That type of arrogance seems to imply he was ordered to repeat pre-set talking points, which means someone is of course continuing to pull the strings, and that isn’t a good sign in banks of the government learning anything from this.
It’s almost like having Obi-Wan Kenobi in the background waving his hand and saying, “There is no ‘too big to fail’ guarantee,” “The banks aren’t benefiting from being bailed out,” “Nobody is pressuring me to say these things,” The banks weren’t failing when they received the bailout money,” “Everything is okay, let’s just move on.”
This is essentially what government officials and some banking executives want us to believe. They think if they repeat things in this way over a period of time, most of the public will just accept it at face value. The trouble is, once we are in a real time of recovery, that will probably, sadly, be true.
