2009: The Year We Rewarded Mis-Management?

March 5, 2009 8:03 pm

All the doom and gloom in modern media has destroyed consumer confidence to unprecedented levels. The once tried and true blue chip companies are now trading for less than 60% – 80% of their value less than 6 months ago. For example, Citigroup (C) shares are now trading at just above a dollar a share. Instead of imposing a $2 fee for ATM transactions Citigroup should consider giving the client the option to purchase a share in the company stock at its current price. Just this week Citigroup has received its 3rd bailout from the U.S. Government to which you the taxpayer are now a 36% owner in the company.

It appears our government is in the business of rewarding bad behavior. Whether it be AIG, Bear Stearns, Citigroup or any other financial firm that was looking to make a quick profit with credit default swaps and other mortgage derivative products the government seems to have no problem throwing money into the inferno. Warren Buffet himself considered these “Financial Weapons of Mass Destruction.” ( even though he is using these same instruments in his portfolio)

Our banking system is under pressure and we continue to place heavier weights on their bottom line. In the past few weeks some very important news has passed that will weigh heavily on profits in the banking system. For instance banks will now be charged more money by the FDIC to insure the money that is deposited into their accounts. At face value this is a great idea for the FDIC as banks are becoming increasingly risky corporations to insure. However, we should be aware that those small banks whose profit margins are already tight will feel even more of a pinch now when they have to pay more to insure deposits. Banks are already having problems keeping their balance sheets afloat and adding an increased fee will not help.

Another strain that will be soon imposed on the banking system and the late Fannie and Freddie Mac is the government’s mortgage modification program. On March 4, 2009 the Obama administration released the set of rules to help those with their mortgages who are in need. They have announced that those who are in need could have their interest rates reduced to as little as 2% and push out the timeline on the amortization of their loan to up to 40 years. Many of you are probably wondering when will I receive a bailout or some assistance for my distressed balance sheet. Pending you meet the criteria of the rules set by our government then soon enough you may be rewarded.

Although this is a harsh lesson to learn, I hope all those out there have learned it. At some point we need to reward those who have made sound decisions with their money. By the way, raising taxes is not a reward.

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