US governments helps CitiGroup - who will be next?
Yesterday US government officials announced that the state will help another US banking group - Citi Group. Firstly, the government will directly invest $20 billion in the company (CitiGroup will issue preferred stocks). Secondly, US state will secure over $300 billion in securities and loans.
This is another “try” to calm the markets and fight the impact of the financial crisis on the economy. Previously we had a big financial help for AIG, then the “Paulson Plan” with $700 billion, and now this. Citi Group losses caused its price went down sharply on Wall Street. Now the bank gets “free money”. The question is - who will be next and how long it will last…
Of course in short term the market will be satisfied. Stock markets will go up a bit… but in fact it won’t change the the overall feeling about the situation. Probably there are many banks and financial institutions that still haven’t revealed their real financial status. There are probably many hidden losses and the question appears - will the government help next companies who will publish bad news? And if not - how the government will distinguish between banks that will be rescued and those that will not. And is it fair?
It seems US government concentrates on helping the biggest financial institutions, whose bankruptcy would have the biggest impact on the market. The smaller ones probably will be left alone. Anyway, even if this uneven treatment may be understood from the global point of view, there is another problem. Government still floods the market with billions of new dollars. Additionally, the interest rates are very low. Politicians are doing what they can to avoid the recession but I’m afraid it just can’t be avoided. And what we can see in the result will be recession combined with inflation…
Tags: citigroup, Financial Crisis, inflation, recession, Stock Market
Financial Crisis, Loans and Banking, Stock Market | admin | 
November 24, 2008 9:44 pm