Yes, massive interventions took place - but if that's not a sign that you should be confident the US government will stand by the dollar I don't know what will. The bank was saved, nobody lost deposits. Regulations prevent this from happening in the future.
However I stand by my argument that the US will be repaid in full for its 2008 bail-outs. There's already been $109B in profit, and still $191B in principal left from Fannie and Freddie alone - and they continue to pay massive dividends of about $20B/yr. They US will come out ahead on this and faith in the dollar was restored. Jobs and the economy were saved. And a known good path forward (restoring Glass-Steagall for instance) exists.
I'm not defending Citi. However equating Citi within the economic system with FTX is nonsense. One's a bank which made poor, legal decisions and was saved because of its role in the broader ecosystem. The other is a shady off-shore bucket shop run by a CEO (and his 9 closest bone-bros) who allegedly fraudulently gambled away everyone's money and is on a plane to Argentina.
tl;dr: Even with the Citi bailouts from your article at face value the government will recoup far more than it spent on 2008.
This whole post feels like the dril tweet about the wise man explaining there's actually no difference between good things and bad things.
My argument is not that the financial system as a whole needed no saving, but rather that it was done in a way which encourages massive and perverse systemic risks.
A failed bank like Citi should have been handled like smaller banks at the same situation were handled - taken over by the government, shareholders wiped out, new honest management installed, and criminal referrals made as appropriate. In addition, they should've broken up the bank to smaller units that will not be too big to fail.
The way it was done, most of the management layer remained and had a vested interest in covering up problems and their own complicity. Worse, it made it clear to other institutions that the bigger they become, the less likely they are to be allowed to fail. The incentives are perverse.
Edit: fairness is also important. A large, politically connected, bank benefited from bailouts that smaller, less well-connected banks and regular people did not get.
> My argument is not that the financial system as a whole needed no saving, but rather that it was done in a way which encourages massive and perverse systemic risks.
Absent follow-up regulation, I definitely agree.
> A failed bank like Citi should have been handled like smaller banks at the same situation were handled - taken over by the government, shareholders wiped out, new honest management installed, and criminal referrals made as appropriate. In addition, they should've broken up the bank to smaller units that will not be too big to fail.
Sure, I can get behind that. I do suspect that part of not doing so was pragmatic. Once you get to a certain scale just swapping out management without massive knock-on effects is very hard and the whole point of the intervention was to minimize knock-on effects. Twitter was a few thousand employees and I wouldn't wish that kind of handover on my worst enemies let alone one of the pillar retail banks. Can you imagine just replacing leadership at Apple and assuming it'd go well?
> Edit: fairness is also important. A large, politically connected, bank benefited from bailouts that smaller, less well-connected banks and regular people did not get.
You owe the bank $1M it's your problem, you owe the bank $100M it's their problem and if the bank owes everyone $400B it's the government's problem. Certainly not fair, but pragmatic.
btw, based on your reply I think our positions are probably much closer together than they are far apart. I want Glass-Steagall back.
> You owe the bank $1M it's your problem, you owe the bank $100M it's their problem and if the bank owes everyone $400B it's the government's problem. Certainly not fair, but pragmatic.
Yes, except that the government has the powers (and had them in 2008) to handle the situation.
> btw, based on your reply I think our positions are probably much closer together than they are far apart.
Agreed.
> I want Glass-Steagall back.
Glass-Steagall was explicitly repealed to allow the merger of Citicorp and Travelers Group which created Citigroup.
Robert Rubin, Clinton's treasury secretary, who promoted for the repeal, joined Citi immediately after leaving government and served as chairmen. He made around $140 million until he had to resign because of the financial crisis.
Citi was too big, too connected, and too corrupt. As long as it so large, it will not be effectively regulated, and it will be bailed out again and again.
If there is no effective regulation, and no legal sanctions, management has a strong financial incentives to take actions that are likely to bankrupt the bank.
There's a great paper about it by two winners of the Nobel Memory Prize in Economic Science. It is based on the lessons of the Savings & Loan crisis.
George Akerlof and Paul Romer: Looting: The Economic Underworld of Bankruptcy for Profit
https://www.nytimes.com/2018/08/06/books/review/james-freema...
This was a massive intervention in saving a failed bank.