Citigroup sells Japanese unit

Citigroup today announced that they are going to sell their Japanese unit. Citigroup is desperately trying to conserve cash and turn around.

You can read the whole story here: http://biz.yahoo.com/ap/081130/as_japan_citigroup.html

More and more companies are being taken over by international companies or selling their divisions to them. Just take a look at Anheuser-Busch (InBev), Morgan Stanley (CIC), Lehman Brothers (Barclays), or Ford selling their 20% share in Mazda back to the parent company. Pretty soon this country will be called the International States Of America, because more American companies will be owned by foreigners.

I highly recommend that everyone view Jim Roger's interview on YouTube below.

It's Black Friday again! Time for us to spend.... or not

I hope everyone in the United States had a Happy Thanksgiving yesterday. Today, also known as Black Friday, is the day where stores entice people to buy stuff for the Christmas season. Watch out for many deals such as Free Shipping, No Tax and XX% off.

However, we should be reminded not to spend beyond our means. Spending beyond our means helped create this economic crisis. The government and media tells us that we need debt in order to function. If this is the case, why does the Federal Reserve keep pumping liquidity in the market and tell the American people and the government to keep borrowing more of what they can't afford while it does nothing to help the current situation. We are heading towards a socialist state, and while bailing out a major institution like Citigroup will help prevent an economic meltdown, its far reaching effects will be felt far and wide. I am preparing for inflation to take off in the next 6 months or so, and it will not look pretty.

I would suggest buying things that store their value such as gold, silver, and agriculture in order to prepare. Here's something the media doesn't tell you. While gold is still hovering around $810 an ounce, it has been making all time highs in every other currency other than the U.S. dollar and the Japanese Yen. Gold will always preserve wealth, while phony paper printed with green ink will not.

Moral Hazard

Moral Hazard is defined by the Economist as "that people with insurance may take greater risks than they would do without it because they know that they are protected, so the insurer may get more claims than it bargained for."

AIG acted in this way when they went on luxury resorts totaling around $440,000 in California just weeks after they received their bailout. That sounds like a great idea to use American tax money in order to fund a luxury "vacation." This company came to the taxpayers for help, and what the American people got in return was a mockery on news networks of how the company who just got bailed out spent their money. AIG knows that they have the government like a rope around their neck. They know that the government will take whatever it takes to keep them afloat, and this is why they continue to act irresponsibly. Companies in a desperate situation such as AIG and GM should not be spending ridiculous amounts of money rewarding their top executives with luxury resorts and private jet flights. What a company should do is cost cut and develop strategies in order to turn the company around, but it seems as if all top management cares about is deciding which five star resort they should travel to next month.

(Source: www.dubai-information.info/)

Lehman Brothers and Citigroup

In the Saturday November 22nd weekend edition of the Financial Times, Francesco Guerrerra and Greg Farrell report:

Mr Pandit reiterated his backing for Citi's "universal banking" business model, combining wholesale, retail and investment banking. "This is a fantastic model," he told staff.

Mr Pandit and Mr Crittenden urged employees to get in touch with clients and remind them that the group's financial position was sound. Citi executives are worried about a flight of capital from the bank but say they have seen no unusual movement in retail or corporate deposits.

Mr Pandit, who took over in December, blamed the share price slump on misinformation and scaremongering from investors, short-sellers and rivals, saying the company was in much better shape now than a few months ago. He said the bank was working with regulators on a number of issues, a reference to the lobbying by Citi and other banks to reinstate a ban on short-selling.

In the conference call, Mr Pandit insisted that the bank's underlying business was strong, generating $100bn in annual revenues. Those revenues, along with plans to reduce Citi's annual expenses from their current $62bn level to $52bn in 2009, would give the bank an added cushion to defend itself in an economic downturn, Mr Pandit said.

Hmm... isn't this similar to what Lehman Brothers said about 2 months ago? Here is an excerpt by Henny Sender, Francesco Guerrera, Peter Thal Larsen and Gary Silverman from the September 16th issue of the Financial Times:

In public, Mr Fuld embarked on a crusade to stop what he regarded as a concerted campaign to sink Lehman by a small group of short-sellers. He called on the Securities and Exchange Commission to take action, drawing up a voluminous dossier of “evidence”. The SEC eventually tightened rules outlawing abusive short-selling for Lehman and several other financial groups. But Mr Fuld went further, phoning some Wall Street counterparts to say that he had heard their traders were spreading false rumours about his bank.

But such behind-the-scenes actions only served to confirm the anxieties of Mr Fuld’s critics. In late June and early July, he began discussing the possibility of a management buyout and initiated talks with half a dozen private equity firms, with the idea that each would put up about $2bn. Those talks also went nowhere. By August, analysts were anticipating red ink, with JPMorgan predicting a possible $4bn loss. The share price drop accelerated.

Within the bank, the atmosphere became siege-like. “It was like Fort Apache, The Bronx,” said one senior insider, with reference to a hard-nosed film centred on a beleaguered New York police station.

During the first week of August, Lehman hosted top executives of Korea Development Bank and China’s Citic Securities at its New York headquarters for talks on the purchase of a major stake in the bank. Mr Fuld greeted his guests with a show of strength, people familiar with the talks said. Even when he was not in the room, he directed the negotiations, according to one adviser to KDB, and gave out virtually no information about Lehman’s holdings. “The Koreans were very receptive,” says this person. “But then he [Mr Fuld] tried to change the terms. The deal went away.” Lehman has declined to comment on Mr Fuld’s role in the talks.

Lehman’s insiders argue that KDB never tabled a formal offer and that the prolonged discussions prevented them from seeking other suitors. In their view, Lehman’s downfall was so fast that Mr Fuld had little time to look for alternatives.

What these two banks have in common is that the CEOs were blinded by their pride. When things went sour at their banks, they started to blame everything else... the economy, misinformation, short-sellers, and numerous other reasons to why their bank's share price kept going down. The last person that they would ever blame because of their company's downfall are themselves. It also doesn't make sense that while the short-selling ban was in effect the market continued lower and punished Lehman and Citigroup even lower. This only proves that investors know the true value of a company's stock price... and not company management. The reason why most people sell a stock is because it is unlogical to hold a company who may very well be worthless. In the case of Lehman and Citigroup, they were right. There is no market manipulation from short-selling here... people sold Citigroup and Lehman because they realized that they were owners of an insolvent company.

CBS: Citigroup "Too Big To Fail"

Citigroup is not too big to fail! Why should the government spend our tax money saving an institution that helped to create the economic chaos that we're in now? What they're doing is destroying our sovereignty and liberties as a nation for the greater interests of the rich "elite". Even though there is the argument that Citigroup will cause even more chaos in the markets by not receiving the bailout, Americans and other people around the world will soon realize that this financial system that was build up on credit will be unsustainable. CBS and the other major news companies are shrouding the public from the truth of the problem and applauding the government for their reaction to Citigroup. If the government is really trying to save our economy from disaster, why do they keep bailing out the people who helped caused this mess instead of the average people who need it the most?

According to the Food And Agriculture Organization Of The United Nations, the world only needs $30 billion a year to end world hunger. The entire $45 billion package used to bail out Citigroup ($25 billion from earlier and $20 billion from the bailout yesterday) could be used to end world hunger. The world will look upon the United States more favorably if the money used to bail out Wall Street was used to help hunger around the globe.

According to Ron Paul's Texas Straight Talk of November 24, 2008:

This week the bailout of the Big Three automakers was under heavy consideration in Congress’s lame duck session. I have always opposed government bailouts of private organizations. Back in 1979 Congress had hearings about bailing out Chrysler and I was on record pointing out that these types of policies are foolish and very damaging to the long term economic health of our country. They still are.

There was also renewed pressure this week to bailout homeowners and send another round of stimulus checks to “Main Street” to balance out all the handouts to big business. It seems that eventually the entire economy is going to be blanketed over with Federal Reserve notes. Most in Washington are completely oblivious as to why this model of money creation and spending is so dangerous.

We must remember that governments do not produce anything. Their only resources come from producers in the economy through such means as inflation and taxation. The government has an obligation to be good stewards of these resources. In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.

With each bailout we hear rhetoric that this is the mother of all bailouts. This will fix the problem once and for all, and that this is absolutely necessary to avert disaster. This sense of panic squeezes astonishing amounts of dollars out of reluctant but hopeful legislators, who hate the position they are being put in, but are relieved that it will be the last time. It is never the last time, and again and again we are faced with the same scenarios and the same fears. We are already in the bailout business for such a staggering amount that admitting it was wrong in the first place would be too embarrassing. So the commitment to this course of action is only irrationally escalated, in the hopes that somehow, someway eventually it will work and those in power won’t have to admit they were wrong.

It won’t work. It can’t work. We need to cut our losses and get back on course. There is too much at stake for too many people to continue down this road. The bailouts thus far to AIG, Bear Stearns, Fannie and Freddie, and TARP funds amount to around $1.5 trillion. Considering our GDP is $14 trillion, and our Federal budget is already $3 trillion, this additional amount will significantly eat into our future lifestyles. That amounts to an extra $5,000 that every person in the country needs to somehow produce just to keep up. It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians.

Citigroup bailed out for $20 billion, U.S. Government to Insure up to $306 billion in loans

Late Sunday evening, Citigroup was bailed out for $20 billion from the Treasury's TARP Program. The government doesn't want to admit it, but if Citi wasn't given their bailout, it could've been a real possibility that one of the largest financial institutions in the world might someday declare bankruptcy. The United States government by this act is just delaying the fact that our financial system is unsustainable. We are indeed entering a socialist state by having our government take ownership in private corporations. GM, Chrysler, and Ford need money. I wonder if the government will take over Detroit as well.

Click here to see the terms of the agreement between Citigroup, the Federal Reserve, the Treasury, and the FDIC.