Protecting Banks from Mistakes

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10/29/2007, 5:26 am

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.

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