When the banks fail, the remainder of the economy is in cardiac arrest. It appears that the disarray in America’s banking sector is growing, its vastly over-compensated management left only with the last resort of “restructuring” and cashing in their political connections for massive bailouts from Washington. The latest public revelations demonstrate how the Global Economic Crisis will take no prisoners, including America’s banks, both large and small.Citigroup, whose management once waxed at its acquisitions fueling excessive growth in the firm’s size along with their salaries and bonuses, has just announced a fourth quarter loss in excess of 8 billion dollars. The total losses incurred by Citigroup for 2008 amount to more than eighteen billion dollars. Now a panicky management is trying to “prove” it has a strategy for survival, based on splitting the banking conglomerate into two components: Citicorp, supposedly the “healthy” component, and Citi Holdings, with the “unhealthy” remnants that will be sold or liquidated. In the meantime, Citigroup took in another $20 billion infusion of TARP money from the U.S. Treasury, along with Bank of America. Another financial institution that grew to the point of indigestion, Bank of America will also receive a government guarantee of $118 billion to “backstop” the bank’s vulnerable assets.
What is actually going on with America’s banks? The dark secret that the government will not discuss publicly is that this vital sector of the U.S. economy is largely insolvent. The reason the Treasury provided $350 billion in TARP funding to the banks with no accountability or strings attached (and no improvement in bank lending to desperate businesses and consumers) is because the balance sheets of U.S. banks are so abominable, any taxpayer funds sent to them are being used solely to improve their dismal balance sheets.
The desperate borrow and spend tactics of the Fed and Treasury Department are akin to bailing out water on the Titanic after she struck the iceberg, hoping in defiance of logic that they can miraculously impede the inevitable sinking of the ship. The calamitous disaster-management techniques in the United States are being replicated throughout the world, as clueless central bankers and politicians add their own permutation on flawed reactions to the Global Economic Crisis.
The banking ship of the United States is going down, and with the connivance of Treasury, the Fed and Congress it will take the American taxpayers on its death ride to foggy bottom