Fortune Magazine’s senior editor-at-large, Allan Sloan, is asking the proper question about Citigroup. And the question is asked in terms anyone who must pay their bills will understand. Like the home buyers who have found themselves upside down on their mortgages, Citi is upside down, too, for a much larger amount. It’s in the $Billions! The article is “Citigroup: ‘Gimme Shelter’“, subtitled, “Why on earth should we protect banks from their mistakes?”
While foreclosure and repossession occurs for individuals who are upside down and can’t make their loan payments, Citi and other monster-sized banks are working with the Federal Reserve for what appears to be a bail out. Allan suggests Citi and other banks face the risk they assumed by making bad investments just as the banks force individuals to do. Included in his solution is passing the effects of the bad investment decisions to Citi’s shareholders, eliminate the common stock dividend and forcing Citi to raise capital by selling new stock below the recent $42/share.
In short, why not let the marketplace take care of Citi’s bad decisions? It seems like the natural and logical consequence.
While it is in Countrywide’s self-interest to do so, this move may benefit Countrywide borrowers who are in default because of interest rate resets which have occurred in recent months, borrowers who cannot refinance but face a rate increase in coming months, and borrowers with subprime credit who have made payments faithfully.
You may also wish to read Countrywide’s Lending Practice on Subprime Loans (PDF File). It is a response to a New York Times article which ran on August 26, 2007 challenging Countrywide Financial Corporation’s subprime lending operations. Countrywide reports finding “solutions to keep more than 35,000 borrowers out of foreclosure during this year alone” and has 2,500 employees in its Home Retention Division.
More than half of U.S. employees have less than $25,000 in savings and investments (this includes retirement savings but excludes homes). About 40% of people age 55 and older have less than $100,000 in retirement savings!
The U.S. Senate unanimously approved a bill which designates October 21 through 27 as National Save for Retirement Week in an effort to encourage employees to save more for retirement.
Scott Adams is famous for the Dilbert® comic. His perspective on the world of work is funny because we all recognize the office dynamics portrayed by his characters.
However, in addition to cartoons, Scott Adams should probably be just as famous for his financial advice. He’s spot on and cuts straight to the important fundamentals.
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