TheStreet.com's Jim Cramer says this bank is too big to be ignored by the government; if it goes, we all go.
Citigroup (NYSE: C)'s (Cramer's Take) to blame for so much that is wrong right now that it seems imperative that someone step in and renounce most of the actions that Chuck Prince put into place and bail out the other parts swiftly to become a plain old bank (POB?) as soon as possible.
We are quick -- depending upon political orientation or sensibilities -- to blame either the aggressive lenders or the irresponsible borrowers. I don't even care any more. What matters is capital, raising capital fast and Citigroup must quickly dismantle the acquisitions Prince made, including the disastrous Japan incursion, and then start selling off businesses and get the government to help bail it out by injecting itself into the structured investment vehicle process. The time has long since passed to worry about moral hazard. The action in Citigroup is critical right now because of a series of horrible decisions made by Prince to get much bigger in mortgages right at the end of the boom.
It must sell its mortgage servicing portfolio, too, agreeing to give some guarantees for some amount of money owed to the buyer as servicing rights can be a lucrative business. The fact that Treasury seems "somewhat" engaged (my quotes) is not enough. The problem at this bank is too big to be ignored by the U.S. government. Put simply, if Citigroup goes, we all go.
Now, while I may not care about the moral hazard, a word should be said about Prince. I had been calling for this man's head for a year now because it was obvious to pretty much everyone I talked to in the business that Citigroup was taking on more and more risk as Prince tried to cover up the terrible day-to-day management that had led to restructuring after restructuring. He had zero leadership skills and divisions ran amok. I want to distinguish this situation from Countrywide (NYSE: CFC) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), both of which were simply trying to take market share in what turned out to be a stupid and reckless way. Both Angelo Mozillo and Kerry Killinger are to blame there, but I don't think either can bring down the system like a failed Citigroup can.
Every time I called for Prince's firing I know I was dismissed as a gadfly, even as it became clear that this one man's action had the capability to become this time around's Long Term Capital. In fact the whole time I have been saying this mess could bring everything down, I have been viewed as an emotional pop-off even as it was clear to me that someone had to scream about this stuff to wake the Fed up. It thinks its job is done but no one else is screaming so we are going to get some big failures before they cut and we are back to becoming a growth economy again. The two-year tells you where we have to cut to, just in case you are wondering what level I believe we have to go to save the system.
Now it is time for the grown-ups at Citigroup to sense the urgency of the situation and quickly undo a year's worth of travesties, or maybe even a couple of years. Citigroup needs to make those sales or its cost of capital will be prohibitive and its dividend will be slashed, which would lead to a halving of its stock price. If the correct actions are taken the stock will turn out to be a screaming buy because of its large deposit base, but if they aren't, we will be thinking that Citigroup needs to be merged or sold.
Put simply, the legacy of Prince, so bad, so horrible, must be repudiated now or it will cost the system a great deal later. I don't think Bob Rubin is the man to do this, as he was instrumental in watching Prince crush the franchise.
Regardless, someone must step in fast. This situation it the most critical situation out there and will serve as the blueprint to get out of this mess. But right now, they aren't even trying.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Citigroup.
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Reader Comments (Page 1 of 3)
11-26-2007 @ 9:46AM
Mort said...
The government ought to go after ALL the banks and mortgage companies that either falsified or commited fraud to make money in a reckless manner. As Secretary Paulson said in a speech last week, "There's lots more about the credit crunch and the housing market.. 2008 will be a difficult year."
11-26-2007 @ 9:48AM
Harry said...
The dollar is the WEAKEST in decades with nations announcing that they will start investing in currencies other than America's, significant credit problems are BOMBING major banks, oil is nearly $100 predicting continuing major gasoline price increases soon, home foreclosure numbers are bad and growing, housing is literally frozen and falling, some cities are reporting major gluts of housing, particularly in condos, grocery and energy prices are soaring with electricity and heating oil/natural gas expected to jump 15-20% this winter, health care costs are almost out of sight and still rising, manufacturing jobs continue to go overseas and the huge illegal alien problem remains...
...and we have a $12 BILLION A MONTH war full of corruption that we can't seem to win.
Whoever thought a Republican administration would put America in such poor financial shape???
11-26-2007 @ 12:17PM
Jean said...
It was obvious that THIS Bush was and is an IDIOT!!!!!! "Whoever thought a Republican president would put the country in such a financial mess?" I did from the moment we learned that Iraq DID not have weapons of mass destruction. The man is a raving idiot and an egomaniac who listens to no one who doesn't agree with him. AND, who is and never has been the brightest bulb on the tree.
11-26-2007 @ 10:15AM
Steven said...
Why don't Sandy and Charles put back into Citi what they stole out of it. Also the stockholders, brokers, mortgage lenders should do the same. We bailed out the banks during the S&L I don't care to do it again and again.
11-26-2007 @ 10:38AM
Steven said...
better yet Jim why don't you fully invest in C to help them out.
11-26-2007 @ 10:41AM
Suzanne said...
These CEOs (Ctigroup, Bank of America etc) need to feel the PAIN that they have brought and will bring to many Americans.
11-26-2007 @ 10:44AM
Suzanne said...
Agree with Steven above. Cramer should step up and put his money where his mouth is!
11-26-2007 @ 11:01AM
SKM said...
Come on Cramer, Government bailout of Citicorp, no way. What happened to the "smart Wall Street boys". The Wall street boys are not smart, they are stupid and greedy, very greedy.
11-26-2007 @ 11:07AM
gholdee said...
Read your history books -- 1929 under, yeah, a Republican administration. Banks failed; the market crashed; Hoover deplored tha laziness of the unemployed (he said, if people weren't so lazy they could get a job -- in a 25% unemployment climate). Now we are supposed to have bank safeguards to avet failures -- and look at the mess! Bernanke, Paulson, et al have to step in b/c greed is the main business model and when it overcomes decency you have to save the victims.
11-26-2007 @ 11:19AM
brian said...
Hey Jimbo, Screw you and anyone who wants my government to bail out any of these companies who have been sticking it to the middle class all these years. 20 , 30 percent interest rates. I saw the dog an pony show put on by your lenders concerning the credit card and the fees they were charging the public. yeah i am sure they gave you a nice little stipend to run your mouth for them. Your a big blow hard cramer and guess what maybe we should all go. we are a bunch of selfish greedy bastards and your right up there dude. Kiss my Arse.
11-26-2007 @ 11:38AM
Mark said...
My guess is that Cramer owns a chunk of Citigroup...
11-26-2007 @ 11:40AM
Joe said...
As Secretary Paulson said last week... 2008 will be a difficult year, especially in credit and housing markets.
11-26-2007 @ 11:44AM
eugene said...
no more bailouts!!!! how much longer do we want this mess to fester? letem fail!!! lets get back to resposible fiscal policy!!!
11-26-2007 @ 11:45AM
BamBam said...
Bonuses for every manager and executive in this corporation should be ZERO this year.
11-26-2007 @ 11:52AM
Steven said...
Mark - what Cramer is saying is that we are all in a
way invested in Citi. However we only get the downside and not the upside. Trickle down is a myth.
11-26-2007 @ 11:54AM
silvertpk said...
The problem was started in the government when it dropped the interest rate so low and put all the money in the economy. The banks then lent it out to keep the USA looking good under the present government. This country is living on credit. I think the responsible people should not be required to bail out the slimy bankers when they doing what our government asked them to do
11-26-2007 @ 12:23PM
Steven Danis said...
There is no one like an erstwhile free marketeer such as Mr. James Cramer to howl more frantically for government intervention when it suits him to do so. For some time Mr. Cramer has been demanding that the Federal Reserve bend over backwards in favor of the speculative interests and keep lowering the cost of money. And as they do so our currency has become almost worthless. Now he wants the government in some unspecified way to bail out a private corporation, Citigroup, from its own failings. When Citigroup was riding high on the premise that making risky loans was good business, the profits weren't being shared with the general public. Mr. Prince was probably incompetent to run that organization, but Citigroup has a board of directors with the power to remove him at any time. Their failure to do so is a big problem for Cititgroup's employees and shareholders, but not for the taxpayers.
11-26-2007 @ 12:28PM
garycarlanel said...
Hey, My kid has a Student loan through Citi, What would happen to that.
The intrest was 4 %, 3 1/2 years ago, now they are charge him 9 %
11-26-2007 @ 12:33PM
JT said...
I don't think we need to rush to save Citi Group... let them turn in the wind a bit, and get them scared straight...
Of course I also think the millions of retards out there who chose to accept mortgages that were dangerously stupid to accept should be left to turn in the wind also. It doesn't take a Rocket Scientist to realize that an ARM is a Stupid Idea.
11-26-2007 @ 12:46PM
BUBBATX said...
do not bail out c. let them fail on their butt. Im a
rep. but right now i am not proud of it. because of the way BUSH has handled the gov., we are headed for a one world currency. We will have two
groups of people in this country, the very rich, and the very very poor. All of this is because of greed.