Rumors: U.S. to Nationalize Citigroup Inc. and Bank of America Corp

Bank of America (NYSE:BAC) shares fell 13% and Citigroup Inc. (NYSE:C) down 8% finishing the day at just $3.50. The hottest rumor on Wall Street today was that the government was planning to effectively nationalize Citigroup Inc. and Bank of America
Corp., perhaps as early as this weekend. Rumors are killing stocks
these days.

Fellow Masters, stay clear of Citi and BofA until the dust settles. In the past 52 weeks Citigroup shares have lost 86% and Bank of America down 81%, its beyond bad.

From the LA Times:

That talk has devastated many financial stocks, and hammered the broader market for a second straight session -- although buyers have been returning in the last half-hour.

The nationalization rumors were put to Federal Deposit Insurance Corp. Chairwoman Sheila Bair at an appearance in New York today, and her non-denial answer wasn’t likely to make investors feel better.

"I’d be very surprised if that happened," she said, according to Bloomberg News.

Some investors weren't sticking around to find out if the rumor was true: Citigroup fell as low as $3.36 early in the session and about 11 a.m. PST was off 43 cents to $4.10.

Fucking Failing Banks - BailoutBank of America fell as low as $7.35 and was off $1.56 to $8.64 about 11 a.m PST.

The Dow Jones industrial average was off as much as 205 points but has pared that to a loss of 43 points at 8,156.

The Dow’s closing low in the fall market collapse was 7,552, reached on Nov. 20.

The latest dive in the financials began early this week on fears that some of the biggest players have become bottomless pits for government capital, as bad loans continue to mount.

Those fears soared late Wednesday on news reports that Bank of America, which got $25 billion under the financial-system bailout Congress approved in October, was negotiating another capital infusion from the Treasury.



Here's some chart fun for you, BofA and Citi vs. the Dow Jones and S&P, awesome.



Enjoy the weekend.

http://www.thestockmasters.com/BAC-NYSE-C-01162009.HTML

I don't understand why they are trying to delay the inevitable.

The outgoing Bush administration wouldn't want to commit an act that many would interpret as a lurch towards socialism. Republicans appear to have a "hands-off" approach when it comes to managing the economy, preferring to let the market regulate itself. Unfortunately the stock market tends to be driven by two conflicting forces - fear and greed - with fear currently having the upper hand.

Uhh, the Republicans were trying to put restrictions on bad loans and buisness practices, but Democrats, didn't want that, and gave bums making $7.50/hr loans of $500,000 or more. Democrats are to blame for the BANKS failing.

Now, reverse the roles, and you'll see how the Republicans totally screwed up the Stock Market. Same story, Republicans want it their way, Democrats wanted to pull in the reigns.

Both parties wrecked the economy, neither wins.

Time for third parties to come in. Democrats and Republicans were 3'rd parties once.

Credit card companies wrecked the economy. It's fucked up that I have to pay with money I don't have to make any major purchases. It's been an economy of dishonesty, lies, and IOUs for too long now. I hope that all changes now.

Banks exist to lower existing trading, informational and transaction costs between markets of investors/borrowers and depositors/savers. They facilitate the flow of credit throughout the entire market.

When margins became lower at the height of the real estate bubble, competition and lax regulation compelled banks, FIs, brokerage firms and hedge funds to complicate mortgage structures, credit derivatives and bonds to realize a higher rate of return for assuming higher risk appetites. Competition, financial innovation and low rates of interest just compounded the bubble as more and more institutions wanted a greater piece of the pie.

This current phenomenon is complex and can't be blamed squarely on political parties, institutions abandoning risk infrastructure or even regulatory agencies. Each contributed in their own respect, but to say that letting banks fail, each with their own systemic risk (think Lehman Brothers) is not only counter-productive, but dangerously naive.

That sounds absolutely correct. I didn't understand any of it.

My reply was going to be "I didn't know Alan Greenspan posted here".

doomedout said:

Banks exist to lower existing trading, informational and transaction costs between markets of investors/borrowers and depositors/savers. They facilitate the flow of credit throughout the entire market.

Banks exist to make a profit from lending other peoples's money. It's competition between banks that lowers costs and - in the current financial climate - it's the reluctance of banks to lend to each other that's driving up the cost of credit.

When margins became lower at the height of the real estate bubble, competition and lax regulation compelled banks, FIs, brokerage firms and hedge funds to complicate mortgage structures, credit derivatives and bonds to realize a higher rate of return for assuming higher risk appetites. Competition, financial innovation and low rates of interest just compounded the bubble as more and more institutions wanted a greater piece of the pie.

The Federal Reserve pumped hundreds of billions into the money market after 9/11 so the economy wouldn't stall while Wall Street was shut down. That money had to go somewhere and it appears a large chunk found it's way into the sub-prime mortgage market, a higher-risk and higher return sector of the market that became more attractive to mortgage lenders while rates of return in other sectors remained miserably low. Basically - they put the money where it could yield the best rate of return.

This current phenomenon is complex and can't be blamed squarely on political parties, institutions abandoning risk infrastructure or even regulatory agencies. Each contributed in their own respect, but to say that letting banks fail, each with their own systemic risk (think Lehman Brothers) is not only counter-productive, but dangerously naive.

Another contributing factor that shouldn't be overlooked is "ARM reset shock" - that's what probably triggered the meltdown. Letting the banking system fail is not an option - neither is underwriting their debts, saying "all is forgiven" and having to repeat the exercise in 10-15 years time.

GreyGhost said:

Banks exist to make a profit from lending other peoples's money. It's competition between banks that lowers costs and - in the current financial climate - it's the reluctance of banks to lend to each other that's driving up the cost of credit.

I was refering to bid/ask spread theory of banking - which justifies the formation of banks to lower costs between markets of borrowers and savers. The fact that banks exist to profit is an incidental, but equally important reason.

Although the banks have been reluctant to loan to each other, the credit markets are significantly better than they were at the beginning of October.

GreyGhost said:

The Federal Reserve pumped hundreds of billions into the money market after 9/11 so the economy wouldn't stall while Wall Street was shut down. That money had to go somewhere and it appears a large chunk found it's way into the sub-prime mortgage market, a higher-risk and higher return sector of the market that became more attractive to mortgage lenders while rates of return in other sectors remained miserably low. Basically - they put the money where it could yield the best rate of return.

Yup. Those hedge funds sure loved the lowest tranches of CDO's - the lowest tranches being the subprime mortgages. I believe they were levered as high as 30:1 into that kind of risk exposure, just for the extra yield.

GreyGhost said:

Another contributing factor that shouldn't be overlooked is "ARM reset shock" - that's what probably triggered the meltdown. Letting the banking system fail is not an option - neither is underwriting their debts, saying "all is forgiven" and having to repeat the exercise in 10-15 years time.

Ya, I don't think it prudent to let the banks go entirely without check - but we can all agree the largest banks, though desperate in need of restructuring (CITIGROUP LOL I HAD STOCK IN THEM), have some embedded, systemic risk that would send shockwaves to the markets if they are allowed to fail without governmental intervention. I guess its a question of applying the right carrots and sticks.

On the Terms of Reset Shock, This is really, really, really going to hurt. It's just about that time where a shitload of those Mortages with the uber teaser rates like 0.9%-2.5% APR are going to reset - causing turmoil many times worse than September after Lehman fell. I really dread seeing that because it's already happening, could be blamed for "triggering the meltdown", and there's more to come, Like a snowball down a mountain.

Was anyone else not surprised that it was announced JP Morgan Chase was holding Washington Mutual's holdings at the same time their collapse was announced? It seems obvious to me since JP Morgan was one of the founders of the Federal Reserve and a chunk of profits from "Federal Income Tax" surely go into his family's pockets.

It's very important that debt holdings are shifted to be held by someone (actually they've been seriously consolidated) so people stay in debt and under control. Don't be surprised if one day political dissidents are targeted for specific financial squeeze or blacklisting and lose their homes.

EDIT: horrable typoe's corrected

I won't be surprised when the intended long-term outcome of all this has been reached. (everyone being poor except the rich)

Gokuma said:

Was anyone else not surprised that it was announced JP Morgan Chase was holding Washington Mutuals holdings at the same time their collapse was announced? It seems obvious to me since JP Morgan was one of the founders of the Federal Reserve and a chunk of profits from "Federal Income Tax" surely go into his family's pockets.

It's very importmant that debt holdings are shifted to be held by someone (actually they've been seriously consolidated) so people stay in debt and under control. Don't be surprised if one day political dissents are targeted for specific financial squeeze or blacklisting and lose their homes.

duh, JPM has connection to people in Washington and was able to obtain Bear Stearns at a discounted price as well, whereas Lehman was left alone to falter. It's good to have friends up at Capital Hill

999cop said:

duh, JPM has connection to people in Washington and was able to obtain Bear Stearns at a discounted price as well, whereas Lehman was left alone to falter. It's good to have friends up at Capital Hill

I can never understand why Mr. Paulson let Lehman Brothers fail.

I do have an explanation for JPM acquiring Bear Stearns at a discounted price: poor cash flow and high leverage = cheap, risky enterprise!

doomedout said:

Banks exist to lower existing trading, informational and transaction costs between markets of investors/borrowers and depositors/savers. They facilitate the flow of credit throughout the entire market.

When margins became lower at the height of the real estate bubble, competition and lax regulation compelled banks, FIs, brokerage firms and hedge funds to complicate mortgage structures, credit derivatives and bonds to realize a higher rate of return for assuming higher risk appetites. Competition, financial innovation and low rates of interest just compounded the bubble as more and more institutions wanted a greater piece of the pie.

This current phenomenon is complex and can't be blamed squarely on political parties, institutions abandoning risk infrastructure or even regulatory agencies. Each contributed in their own respect, but to say that letting banks fail, each with their own systemic risk (think Lehman Brothers) is not only counter-productive, but dangerously naive.

In the case of how things are now, it's the exception. Generally, if a buisness fails, it should die off, like Circuit City is. Where's their bailout? CC isn't a major cog in the broken machine, but the huge banks and other institutions would be too much, and cause a huge domino effect. In this case, it's too risky to let 'em all fail, because the Great Depression would be a minor rough patch compared to what could happen.

Georgef551 said:

In the case of how things are now, it's the exception. Generally, if a buisness fails, it should die off, like Circuit City is. Where's their bailout? CC isn't a major cog in the broken machine, but the huge banks and other institutions would be too much, and cause a huge domino effect. In this case, it's too risky to let 'em all fail, because the Great Depression would be a minor rough patch compared to what could happen.

The problem with the bank bailout bill is that it allows no significant accountability for what is done with the money. So we could end up giving all of this money to institutions that may fail anyway and We The People will have no recourse as a result.

Lich said:

The problem with the bank bailout bill is that it allows no significant accountability for what is done with the money. So we could end up giving all of this money to institutions that may fail anyway and We The People will have no recourse as a result.

Which is the intended aim of this entire financial crisis - the redistribution of wealth from the people to the financial institutions that rule the world. There's no limit to the bailouts, they will keep getting made under the claim that "the last bailout failed to kickstart the economy" (which ofc happened here in the UK this week) and a few years down the line taxes will rocket as governments will have spent too much on bailouts (and in our case, rampant public spending on useless crap like the the 2012 Olympics).

It looks like you've discovered a bad case of Economic Feudalism.

Lich said:

The problem with the bank bailout bill is that it allows no significant accountability for what is done with the money. So we could end up giving all of this money to institutions that may fail anyway and We The People will have no recourse as a result.

I'm no fan of it, either, but right now, we unfortunately need to do this, even if people get away with murder.
Bank of America's getting another $3B will Meryl Linch aquisitions. Good job, let's but some CC stock next.

Georgef551 said:

I'm no fan of it, either, but right now, we unfortunately need to do this, even if people get away with murder.
Bank of America's getting another $3B will Meryl Linch aquisitions. Good job, let's but some CC stock next.

We need to do this without accountability?

Of course we do - it's for the greater greed good! :)

GreyGhotst, you were right the first time.

As for the no-liability thing, even if you DO put that in force, the corprate lawyers WILL find ways around them.

I miss fodders, threads like this are just made for him.

Georgef551 said:

As for the no-liability thing, even if you DO put that in force, the corprate lawyers WILL find ways around them.

Normally, when you are paid several hundred thousand a year to only protect your company, they will of course find any way to weasel their pay source out of trouble.

What bothers me about folks like George is that they vote for people who claim to be fiscal conservatives, but then manage the debt as though they have no idea what the words "fiscally" and "conservative" actually mean.

Simple question for you, George: If you managed your finances like George W. Bush managed our country's, would you expect things to work out?

Georgef551 said:

As for the no-liability thing, even if you DO put that in force, the corprate lawyers WILL find ways around them.

That defeatist attitude doesn't help anything. The politicians who decided to leave accountability out of the bill have no excuse.

Creaphis said:

That defeatist attitude doesn't help anything. The politicians who decided to leave accountability out of the bill have no excuse.

These folks don't want accountability. Accountability only makes it more difficult to maintain corporate welfare by privatizing profits and socializing risk.

I find it odd how people who want well-funded social programs and legitimate safety nets are socialists, but banks that routinely make bad decisions are rewarded.

Lich said:

Simple question for you, George: If you managed your finances like George W. Bush managed our country's, would you expect things to work out?

Not at all. I predicted this failure to happen back in 2001, and the only surprise is, that it didn't fail sooner in his administration.

I'm quite the opposite. I'm the only one in my family, imediate or relative, who is solvent in my age group. I have tons of HDTV's, tons of electronics, and a couple projectors, and all done on a working poor wage, too. I believe in that don't-spend-what-you-don't-have thing.

So now its just the bank's fault?