by Josh Sidman
Josh’s Blog Post
November 25, 2008
The late Senator Everett Dirksen famously quipped, “A billion here, a billion there, pretty soon you’re talking real money.” Times have changed. Nowadays a billion is a mere rounding error, ten billion elicits little more than yawns, a hundred billion might start to raise a few eyebrows.
In the latest of a never-ending series of public bailouts, today the government injected $20 billion into Citigroup (on top of a previous infusion of $25 billion). In response, the stock price of the company surged 60%, representing an increase in shareholder wealth of approximately $13 billion. In other words, while increasing numbers of Americans are crushed by a financial crisis caused in large part by companies like Citigroup, the government saw fit to take another $20 billion of taxpayer money and give it to the very people who caused the problem in the first place.
Now, I agree with the notion that a company like Citigroup may be “too big to fail”. The consequences of letting an institution like Citi go under would be dramatic and far-reaching, but this is no argument for rewarding shareholders. Those who profited from the excesses of the lending bubble ought to bear the full brunt of the crisis they helped to create, and if that means that the stock price goes to zero, so be it.
Let’s think about what we could do with $20 billion if we decided not to use it to reward the very people who caused the problem in the first place.
We could open the phone book and select 20,000 people at random and give each of them a million dollars. I bet that would stimulate the economy. Or we could select 400,000 high school seniors and give them each $50,000 to put toward a college education. Or we could identify 20 companies that are likely to play a leading role in the “green economy” of the 21st Century and give each of them a billion dollars to invest in research and development.
And that’s just one bailout. Imagine what we could have done with all of the money that has been plowed into AIG, Fannie, Freddie, etc., etc. I guess all of this should come as no surprise given that the man in charge is the former CEO of Goldman Sachs. And, hopeful as I am that President Obama will deliver on his promises of change, his appointments of such establishment figures as Timothy Geithner, Larry Summers, Hillary Clinton, Bill Richardson, and Tom Daschle doesn’t instill a great deal of confidence that his administration will represent a true changing-of-the-guard.
Aw hell, if you can’t beat ’em, join ’em. I think I’m just gonna try to figure out which will be the next mega-corporation to receive a $20 billion bailout and buy their stock. Heck, I might even see if I can put it on my credit card.
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Chomsky: Serve them supenaes, don’t appoint them. Nothing is too big to fail in the financial markets. Gm would havefailing would have a much larger impact. This article does a good job of pointing out the magnitude of the money being pissed away to the cronies of Paulson.
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