Citigroup’s stock has plummeted to its lowest price in more than a decade, closing Friday at $3.77. At that price the company is worth just $20.5 billion, down from $244 billion two years ago. Waves of layoffs have accompanied that slide, with about 75,000 jobs already gone or set to disappear from a work force that numbered about 375,000 a year ago.
“They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,” said Roy Smith, a professor at the Stern School of Business at New York University. “Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.”
It is sad to see the same story repeated over and over. Give people the change for obscene bonuses. They make up claims that they are making lots of money to get bonuses but actually set the company to go bankrupt. They take huge bonuses because of course they are so smart and successful. The company fails and they say the market is to blame (it isn’t that they are really not that smart and of course they deserve the obscene bonuses they took before the collapse – or even after the collapse). They feel no shame for the horrible mess they leave in their wake that they would paid more than a king’s ransom to manage. They will be on to similar schemes in a few years.
If you are a bank you make money by borrowing for less than you lend. If you are a speculator then you try to out bet the other speculators. Nothing wrong with either choice to me. When you want to say you are a bank but you want to make most of your money from speculating their is a problem. Investment banks used to also make huge amounts from fees they would charge (they still do but not enough to offset the huge speculative losses).
Allow speculators to risk your economy when they fail seems a pretty stupid way to run an economy to me to. Fine some person wants to gamble with their money let them. Someone wants to speculate with leverage so that the bet exceeds the entire assets of a bank or insurance company? Are you crazy? What do is many speculators, gamblers… do as their losses mount? They will take riskier and riskier gambles to get back into a profitable state, until finally they have no money left. Add leverage and of course you get what we have today (or had with Long Term Capital or…).
Allowing your banks or insurance companies to take such risks seems incredibly stupid to me. But how can the bankers pay themselves, and all their buddies tens of millions, if they just run a bank instead of speculating? So why would they care about risking the future of the bank? Well I suppose if they had ethical fiber but that is a pretty thin hope to pin your banking system on. Look the people that took tens of millions a year for the last 10-30 years are not stupid. They know that without huge assets they would limit how many millions they get every year. And they can pay the politicians a great deal to let them do so. It doesn’t seem that likely we will prevent such behavior going forward. It would be nice if we do but I don’t see how. We don’t have the leadership (either elected officials, boards of companies or regulators) that has shown an ability to protect the economy (or company in the case of boards of directors) over protecting huge payoffs to their friends (who often they shower money back on the “leaders” – not as brides of course, but contributions or jobs…).