Tuesday, November 25, 2008

 

US Government takes a stake in Citibank

This was something that would have been deemed impossible even a few months back. A Government and system that believes in the free market philosophy, bailing out a massive bank with tax-payer money; that too when the President is from the Republican Party ? This just goes to show that ideology and dogma don't stand a chance when a country's interests and well-being are challenged. Citibank is too big a bank, with too heavy an involvement in the economy. A collapse of Citibank would have been seen as disastrous failure, and causing a lot of shocks in the financial world; already the US economy is in recession, sales are down, unemployment is high. One can imagine how bad the state of the economy is when you consider that such a massive step such as providing financial support to Citibank has not been opposed by anyone - most people are shell-shocked and without a clue as to how to improve things. In such a state, using the funds allocated for saving the economy to pick up a state in Citibank is like showing the market that the Government will not let such a big player such as Citibank go down; this is what the US Government has also done earlier for troubled institutions such as the Mortgage companies, for the big brokerages, for other banks, for AIG, and so on.
What does this mean ? It means that by the time this entire bad period ends, the happenings now will be a case study of the power of the Government and Central Banks to try and ward off a massive downturn while letting the recession and bad news stand. In addition, the Government will end up with stakes of so many financial institutions that it will seem like a command economy to some degree, like a back door nationalisation.

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