Citi

Citi (1812- ), also known as Citigroup, Citicorp or Citibank, is the biggest bank on Wall Street. Unlike Lehman Brothers, it is considered to be “too big to fail”: if it fell, too many other banks and companies would fall too. So on Monday November 24th 2008 the American government bought a $20 billion stake in the bank and stood behind hundreds of billions of dollars of possibly bad loans. This comes on top of a $25 billion stake the government had bought several weeks before.

All this money is coming from the $700 billion in taxes the government is using to save Wall Street.

The stock market, which fell below 8,000 last week, rose by almost 400 points on the news.

Citi has lost billions in the subprime mortgage crisis and the credit crunch that followed. It had made billions of dollars of home loans to people with bad credit histories.

Citi’s stock price, which stood above $50 before the crisis hit in August 2007, had fallen to $25 by February 2008 and $12 by October. In November it sank even further, to less than $4. Citi has been losing billions and laying off tens of thousands of workers.

Citi is huge. It has branches all over the world and has money in every field of banking. It lends money to foreign governments and to ordinary people. It aims to be a universal bank, a bank you can turn to no matter what you want.

If you have a credit card from Macy’s, Sears, Shell, Home Depot or Staples it is, in fact, behind the scenes, a card from Citi. Even some American Express cards come from Citi.

In the 1960s it gave the world the MasterCard. In the 1970s it was one of the the first banks to have ATMs, money machines. In the 1980s it was one of the big banks in New York. In 1998 it became not just big, but huge when it merged with the Travelers Group and changed its name from Citicorp to Citigroup. (It later parted ways with Travelers and changed its name to just Citi).

Citi is made up of not just the old City Bank of New York but also all the other banks and companies it has bought or merged with along the way: Bank Handlowy, Smith Barney (“We make money the old-fashioned way. We earn it.”), Salomon Brothers, Banamex, Primerica and others.

It is now partly owned by not just the American government, but also by Abu Dhabi, Kuwait and a Saudi Arabian prince, Alwaleed bin Talal.

Its size is what has saved it – so far. Losses in one part of the company can be made up by gains in others. And when all else fails, the American government can pump in billions!

Yet its huge size makes it hard to manage and lead, makes it slow to change. And all the little pieces that have been bought up over the years do not work well together and that will not change overnight.

– Abagond, 2008.

See also:

• The fall of Lehman Brothers
• credit crunch
• dollar

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The fall of Lehman Brothers

Lehman Brothers (1850-2008), one of the top banks in New York, went broke on Monday September 15th 2008. It was the biggest bankruptcy in American history. The next day Barclays bought up the banking and trading parts of the company. Lehman almost went under in 1998. It employed 25,000 people.

In 2007 Lehman made $4 billion in profits. But then the following spring it lost $3 billion and then another $4 billion in the summer. It was unable to cover its mounting losses.

This comes on the heels of Merrill Lynch, an even larger New York bank, being sold to Bank of America and six months after the fall of Bear Stearns, a smaller bank.

In different times the government might have saved it. It chose not to. If it saved Lehman the markets would believe that a bank could be “too big to fail”. With the government as a safety net, banks would show even poorer judgement than they have and taxpayers would wind up paying for it all. There would be no road back to health for the banks or the country.

The big banks on Wall Street made this mess, what is known as the subprime mortgage crisis or the credit crunch.

They had done so well over the past ten years that they began to believe they were the gods of the universe, that the rules of banking no longer applied to them.

In this frame of mind they started making what they knew were bad loans: they lent money to people with bad credit histories to buy houses. Because of their credit histories, they knew these people, for whatever reason, were bad at paying back debts. But the banks thought it would not matter if they put the bad loans together with good loans. Instead it had the opposite effect: once these loans went bad, it affected even the good loans. Like bad apples.

In August 2007 it all started to fall apart.

So in March 2008 Bear Stearns went under, and now in September it is Lehman. Merrill Lynch almost went under. The other New York banks that are still standing made the same mistakes as Lehman and are losing billions and billions of dollars. There is no reason to believe that Lehman will be the last to fall.

Lehman Brothers started out in 1850 as a dry goods store in the state of Alabama. It accepted cotton as payment, so it got into trading cotton. In time moved to New York, the place where cotton was bought and sold in large quantities. There it got into trading coffee and dealing in railroad bonds.

In 1887 it joined the New York Stock Exchange and started issuing stocks. It helped to bring Sears Roebuck, RCA and other companies into the stock market. From 1969 to 1994 it was a part of American Express.

Having made it through civil war, the Crash of 1929 and the Great Depression it could not make it through the times we live in now.

See also:

• credit crunch

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