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Global Financial Crisis, No Bailout Will Stop It

Sometimes, a bailout is not enough.

When Dubai World black swanned global investors last month with what amounts to be a reported $80 Billion in debt liabilities, it sent shivers down the spine of many a financial manager and stock trader. For those who were paying attention, Dubai’s troubled assets were no surprise, it was simply a matter of time. Oft repeated by contrarian analysts and investors like Dr. Doom Marc Faber, Gerald Celente, Jim Rogers, and Karl Denninger, the mathematical certainty of the economic crisis would play out – eventually.

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It was a year ago that the entire global financial system, spear headed by the USA, faced the real possibility of total meltdown, that is if you trust the motivational fear tactics employed former Treasury Secretary Henry Paulson.

This week, the American public received word that the banks once deemed too-big-to-fail will be paying back their TARP funds, ostensibly because they are now cured of the financial contagion that threatened sudden death, economic collapse and the implemntation of martial law.

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In addition to Bank of America and JP Morgan Chase, we have commercial real estate powerhouse and partially owned subsidiary of Warren Buffet Enterprises, Wells Fargo, which announced it will sell $10.4 billion in stock and exit the TARP bailout. According to a company statement, the bank plans to pay back $25 billion in taxpayer funds. CEO John Stumpf, presumably also doing gods work, says “we’re ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer, as well as our customers, team members and investors.” Management did not comment on whether the share sales totaling around $14.8 billion, when you count additional plans to raise capital, will devalue, by way of dilution, the amount of market capitalization held by shareholders.

Citibank, who also committed to repaying $20 billion in TARP funds yesterday saw a stream of positive news throughout the media when they announced their intentions. Just 24 hours later, Bloomberg reports that Citigroup’s Exit From the Bailout is Clouded by Citi Holdings Assets. It seems that CEO Vikram Pandit failed to mention that his company is “emerging from a U.S. bailout with higher capital levels and loan-loss reserves than any peer.” That amount to somehwere in the area of $617 billion.

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December 16, 2009

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