Size matters.
The unfortunate reality is that bigger really is better.
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At least that seems to be rule of thumb in the business of bailouts.
Ask AIG. The government was so petrified by the possibility that the giant insurer might fail; it has forked out more than $130 billion in aid.
It also seems to matter who you know and where you’re from. If your company is based in New York and you’re buddies with Hank Paulson, the world is your oyster.
Just ask the boys from Detroit. They asked for a measly $25 billion, and they got the bum’s rush.
After its stock plunged 60 percent last week, it should come as no surprise that Hammerin’ Hank stepped up to help his pals at Citigroup.
Citigroup is the poster child for a banking system run amok.
As My Friend, You Cannot Lose
Yesterday, Paulson pulled out his gold card and gave Citigroup $20 billion. More important for Citigroup is that federal regulators have guaranteed to protect the flailing bank from losses on a $306 billion pile of troubled U.S. home loans commercial mortgages, sub-prime bonds and corporate loans. This aid comes on top of the $25 billion cash infusion the bank received last month under the rubric of the TARP – Troubled Asset Relief Program.
With nearly $2 trillion in assets and operations in more than 100 countries, Citigroup’s tumbling share prices clearly sparked government concern that depositors might pull out their money and destabilize the company.
Who Needs a Strategy?
In exchange for pulling their fat out of the fire, “we” will get $27 billion in preferred shares in Citigroup paying an 8 percent dividend. If you like that deal, I’ve got a bridge for sale in Phoenix.
When the automakers bellied up to the bar, they were sent packing and told not to come back until they had a real plan to become viable.
Clearly, the automakers could learn a thing or two from Citigroup. Apparently, the banking giant’s business recovery plan is diabolically simple – when it runs out of money, it’ll ask for more, because everyone knows it’s too big to fail.
Car Companies, Are You Listening?
So listen up Detroit – you don’t have ditch the private jets, you can even roll into D.C. in stretch limos. What you really need is a hotshot New York P.R. firm to make it look like you’re an essential part of the American economy, even though everyone knows your days are numbered.
If you do that, and maybe buy Ol’ Hank a box of Cubans and some courtside tickets for the Knicks, you might have a shot. It also might help if you put a float in the Macy’s Thanksgiving Day Parade.
Can’t you just see it? Rocky and Bullwinkle hover side-by-side with a blow-up version of the Chevy Suburban. It warms the heart.
John Cohn is a senior partner at Globe West Financial Group based on the Westside. www.globewestfinancial.com.
His essays appear every Tuesday morning.
