Home OP-ED It’s Still a Turkey – No Matter How You Slice It

It’s Still a Turkey – No Matter How You Slice It

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Thanksgiving is a time to reflect on the wisdom of our elders.

Among his many pearls, my grandfather used to remind me that “if your feet smell and your nose runs … you were built upside down.”

Much the same can be said of the approach the outgoing administration and Congress have taken to our growing financial crisis.

Take the case of Citigroup vs. General Motors.

In the recent past, General Motors was once the largest automaker in the world, and if measured by its asset value, Citigroup was the nation’s biggest bank.

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Da Value Is Devalued

At the end of 2006, Citigroup had a market value of about $275 billion. Today, the bank’s worth has been whittled down to a mere fraction of its zenith to approximately $21 billion. G.M. ’s share value is almost unmentionable.

Both the automaker and the bank have sought federal assistance. Citigroup has gotten a blank check while General Motors has gotten a blank stare.

There is no question that a run on the banks, as occurred during the post-crash 1930’s, looms large in the minds of the federal decision-makers. Likewise, there is no debate that the executives at both companies made fatal errors that put the pursuit of short-term profits over the value of establishing long-term corporate vitality.

Lawmakers seem intent on pushing G.M. to reorganize its debt through the bankruptcy courts. In sharp contrast, Washington seems to believe that a bankruptcy for Citigroup would lead to the financial Armageddon.


A Protection Racket?

Who are the lawmakers really protecting?

In my view they have elevated the welfare of Citigroup’s investors, shareholders and creditors above that of the American worker.

I’m no socialist, but let’s consider who really pays the bills in this country and on whose shoulders the American economy really rests.

Seventy percent of our economy is reliant on retail sales.

As we approach opening day of the Christmas buying season, we’ve already seen consumer spending fall 1 percent, the most in seven years.

This biggest consumer spending slump in three decades is likely to persist as home prices fall and job losses mount, threatening the holiday sales outlook at retailers from Sears and Wal-mart to Zale’s and Best Buy.



Safety Net Only for Some

If G.M. and the other Detroit automakers fail, the nationwide job losses could top 2.5 million. On the other hand, if Citigroup goes under, it may be grim for its executives and shareholders, but because of government guarantees, the mutual funds, pension funds and deposits overseen by the bank would be safe.

The plain truth is that Citigroup is no different from G.M. Its solvency has been undermined by the blunders of its executives and management.

Under the current rubric, the government has been selecting who wins and who loses. So far, bank investors and debt holders have been elevated above regular work-a-day Americans.

To retain their viability, both companies should receive some amount of federal assistance. But neither should immune from the swift kick in the hindquarters that only can be accomplished through bankruptcy.

Happy Thanksgiving to you and yours.


John Cohn is a senior partner at Globe West Financial Group based on the Westside. www.globewestfinancial.com.