ID :
48605
Tue, 03/03/2009 - 08:11
Auther :
Shortlink :
https://www.oananews.org//node/48605
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(EDITORIAL from the JoongAng Daily on March 3) - Nationalizing Citigroup
Citigroup, one of the world???s major financial institutions, finally succumbed to nationalization after failing to overcome the pressure of subprime mortgage insolvency. Despite a massive injection of financial aid from the U.S. government in two separate installments, Citigroup arrived at the conclusion that there was little hope of surviving on its own. The U.S. government will increase its share in
Citigroup to up to 40 percent by converting into common stock the $25 billion in preferred stock invested in the bank from an earlier bailout.
Now, as the U.S. government becomes the bank???s biggest shareholder, the danger
that Citigroup will collapse has been dealt with. However, there is a long and
difficult road ahead before Citigroup can return to normal.
For the U.S. government, nationalizing Citigroup was inevitable, even though the
U.S. Treasury had wanted to avoid the question of nationalization. Though it has
invested bailout funds in several financial companies, it has tried not to take
control of management. But the situation in the financial industry is moving too
fast for it to seek other options. Citigroup was on the verge of collapse even
before the U.S. government began reshaping the financial industry, but in a moment
of urgency, the government decided to save the bank through nationalization.
Without interventions in the other major banks, the deteriorating financial
situation could have led to bank runs, paralyzing the entire financial system.
The problem is that the nationalization of Citigroup is just the beginning of what
will need to be done to overhaul the U.S. financial industry. There are more than a
few insolvent financial firms other than Citigroup rumored to be on their way to
nationalization, and the amount of money that will be needed to clean up their
insolvent assets is difficult to estimate.
Another problem is that it is not clear how the U.S. financial industry will change
when all is said and done. But it is clear that the U.S. government must again draw
its sword and restructure, just as it did with the nationalization of Citigroup. It
needs to be bold and to act quickly.
The U.S. government should formulate a restructuring plan and initiate it
immediately, once the insolvent firms are sorted out from those that are sound. If
it hesitates, not only will the U.S. financial system collapse, but the global
financial market will be thrown into a chaotic mess from which it will be difficult
to emerge.
(END)
Citigroup to up to 40 percent by converting into common stock the $25 billion in preferred stock invested in the bank from an earlier bailout.
Now, as the U.S. government becomes the bank???s biggest shareholder, the danger
that Citigroup will collapse has been dealt with. However, there is a long and
difficult road ahead before Citigroup can return to normal.
For the U.S. government, nationalizing Citigroup was inevitable, even though the
U.S. Treasury had wanted to avoid the question of nationalization. Though it has
invested bailout funds in several financial companies, it has tried not to take
control of management. But the situation in the financial industry is moving too
fast for it to seek other options. Citigroup was on the verge of collapse even
before the U.S. government began reshaping the financial industry, but in a moment
of urgency, the government decided to save the bank through nationalization.
Without interventions in the other major banks, the deteriorating financial
situation could have led to bank runs, paralyzing the entire financial system.
The problem is that the nationalization of Citigroup is just the beginning of what
will need to be done to overhaul the U.S. financial industry. There are more than a
few insolvent financial firms other than Citigroup rumored to be on their way to
nationalization, and the amount of money that will be needed to clean up their
insolvent assets is difficult to estimate.
Another problem is that it is not clear how the U.S. financial industry will change
when all is said and done. But it is clear that the U.S. government must again draw
its sword and restructure, just as it did with the nationalization of Citigroup. It
needs to be bold and to act quickly.
The U.S. government should formulate a restructuring plan and initiate it
immediately, once the insolvent firms are sorted out from those that are sound. If
it hesitates, not only will the U.S. financial system collapse, but the global
financial market will be thrown into a chaotic mess from which it will be difficult
to emerge.
(END)
