Okay; I can honestly say that I didn’t see this happening. I figured that Citigroup, like Bank of America and JP Morgan Chase, would both be strong enough to weather almost anything the economy could throw at them, but their recent stock movements are highly precipitous.

Citi Weighs Its Options, Including Firm’s Sale - WSJ.com

Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.

The internal discussions are at a preliminary stage and don’t signal that Citigroup’s board and management are backing down from their insistence that the New York company has ample capital, funding and strategic direction, these people said. But with the stock down another 26% Thursday, its worst one-day percentage decline ever, Citigroup officials have decided they need to reckon with a range of scenarios that were unthinkable only weeks ago.

Citigroup’s board of directors is scheduled to have a formal meeting Friday to discuss the options, according to a people familiar with the situation. Meantime, directors have been talking by phone about what could be done to reverse the stock’s slide.

Top executives were locked in meetings Thursday to hash out a stabilization strategy. A Citigroup spokeswoman said in a statement Wednesday evening: “Citi has a very strong capital and liquidity position” and is “focused on executing our strategy,” which includes cutting expenses and selling assets. “We believe the benefits will be seen over time.”

With roots stretching back to 1812 and more than 200 million customer accounts in 106 countries, Citigroup is an icon of global capitalism. It is getting battered by the same financial storm that has already remade the face of Wall Street, forcing the sale of Bear Stearns Cos. and Merrill Lynch & Co. earlier this year, and triggering the bankruptcy filing of Lehman Brothers Holdings Inc.

Chief Executive Vikram Pandit and other Citigroup executives have told colleagues they are frustrated and befuddled by this week’s 50% stock decline. Investors have dumped bank stocks en masse on fears that economic woes will batter financial companies worse than previously expected.

It’s going to be interesting to see how this plays out. Wonder if the A-Train has been shorting “C”?

A-train railing against free-market realities. Okay, so it’s not truly a free market, but there are limits to what banks receiving funds under TARP can do; limits designed to protect the American taxpayer as a senior investor (the investments are in preferred securities after all), whilst not placing excessive limits on free-market flexibility for the banks to make money.

Making direct investments by buying preferred securities which must pay an annual 5% dividend for the first 3 years, and then an annual 9% dividend thereafter, and effectively leaving the rest of the program to the free-market is a bad thing? Preventing golden parachutes for the top-5 executives is a bad thing? Paying performance-based bonuses to the bankers that actually bring business IN to the firm, generating revenue and profit to enable the firm to continue is a bad thing?

Would people prefer that the bankers leave and start hedge-funds instead, thus ensuring that TARP fails and the American taxpayer does not get paid back?

I love how the important paragraphs in the story that retreat from the headline and indicate that things aren’t quite as extreme the headline makes them sound are buried deep within the story, which most people won’t read from start to finish.

Bush under fire for giving billions from rescue fund to banks - Salt Lake Tribune

The rescue legislation included some limits on executive compensation. And it does not allow institutions receiving the money to increase dividends. Lazear said that Treasury officials will make sure those requirements are met.

But he also suggested that the government would go no further in placing conditions on banks in the program. Lazear said that to do so may hamper their voluntary participation, and may also dampen the kind of free-market flexibility the administration believes will work best to get credit moving again. The first checks moved out to big banks this week.

Instead, he said that incentives in the program as well as free-market realities will result in the program’s success. For instance, the law requires that banks pay “quite significant dividends” to the government, meaning they have every reason to start lending again to make the kind of money necessary to both make a profit and to pay back Washington. The law requires a quarterly 5 percent dividend to the government that increases to 9 percent after three years.

On executive pay, she said that participating banks are complying with the law’s requirements. Under the law, an executive who receives a bonus based on false financial statements must repay it. The law also says that “golden parachutes” are not available for the top five executives of a company.

At least the Wall Street Journal puts the important information front and center:

Securities Firms Tackle Pay Issue - WSJ.com

Wall Street is waking up to the political tempest over billions of dollars in year-end bonuses likely to be paid out at securities firms lining up for government infusions, top executives are in discussions to possibly cap their own compensation, according to people familiar with the situation.

While the discussions remain fluid and many details still must be agreed to, the talks underscore an emerging consensus among some of the securities industry’s most powerful executives that the escalating pay controversy is creating yet another public-relations mess for Wall Street.

“There are going to be some people in the financial-services industry who will show real leadership here and recognize the reality of the situation,” one senior Wall Street official said.

And as Wall Street firms examine their pay and bonuses, distinctions are being made between the highest-ranking executives and lower-level traders and investment bankers who aren’t widely known beyond Wall Street but could get plucked away by rival firms if compensation practices are significantly altered.

As a result, the most likely scenario in the firm-by-firm discussions is a sharp decline in compensation for chief executive officers, but fewer changes in how bonuses are paid to most employees, according to a person familiar with the matter.

This week was totally unreal. Over the course of the past 6 weeks, since the beginning of September, I have lost over 50% of my net-worth; almost all of which is in my retirement plan.

On the other hand, I have been averaging my cost-basis down in Morgan Stanley, picking up another 150 shares yesterday, and I think about 350 shares today … so I now hold about 1050 shares altogether. A year ago, my 500-ish shares was worth about $33,000.00 … my now 1050-ish shares is worth about $10,000.00.

I still find it hard to believe that Morgan Sanley has lost about 85% of its value per share in that time … and our share price is now about 41% of our book value. Yep, we’re selling for 41-cents on the dollar of our actual value.

Wild Day Caps Worst Week Ever for Stocks - WSJ.com

The Dow Jones Industrial Average capped the worst week in its 112-year history with its most volatile day ever, as hopes for a major international bank-rescue plan were overwhelmed at day’s end by another wave of selling.

Some investors who normally would be jumping to buy beaten-down stocks after a 22% decline over eight trading days said the relentless declines have left them shell-shocked and unwilling to take new risks. Some spent the day trying to protect themselves from further declines.

The Dow fell 697 points shortly after the opening bell, and remained down most of the day. It surged to a 322-point advance less than half an hour before the close. Investors stampeded into bank stocks as reports circulated that the Group of Seven leading industrial countries were going to agree on a plan to rescue major banks, and that Morgan Stanley had been assured that it would receive funding from a Japanese bank. Hopes briefly blossomed that the worst might finally be over.

And then thing started plowing their way back down again. On the other hand:

Can Morgan Stanley Outrun ‘The Fear Virus’? - WSJ.com

Morgan Stanley’s stock has dropped 20% after falling as much as 35%. It is trading at around $9.50 each share. Moody’s is threatening a downgrade. People are nervous.

Should they be?

Deal Journal set out to find out. Morgan Stanley filed its third-quarter 10-K last night. The highlights of the filing show that the bank is not in trouble — or at least, it certainly was not at the end of the third quarter. Deal Journal took a look at some measures of Morgan Stanley’s health, and whether they improved or became sickly.

For now, the deal with Mitsubishi UFJ is still on:

Morgan Stanley shares fall 36% today - CNN Money

Spokesmen for both Morgan Stanley and Mitsubishi UFJ reiterated on Friday that the deal is set to be completed by Tuesday. There has been speculation in recent days that the transaction could fall apart as the deepening credit crisis makes financial companies even more vulnerable.

Mitsubishi UFJ agreed to pay $6 billion for preferred stock and $3 billion for common stock at a value of $25.25 apiece. That’s 50% more than Thursday’s closing price.

Pressure on Friday also stemmed from concerns that Morgan Stanley’s counter-parties and trading partners could lose confidence and pull their business. That’s one of the reasons Lehman and Bear Stearns were unable to survive, but Morgan Stanley might be in a bit better shape.

The investment bank has about $900 billion of assets and an equity market value of about $8 billion, and is still considered to be one of the world’s most well-capitalized investment banks. A research report from Barclays Capital said Morgan Stanley has between $100 billion and $115 billion of liquid reserves.

And, rumor does have it that Morgan Stanley will be one of the first beneficiaries of the Treasury’s program to purchase equity stakes in banks to help inject more capital into the system.

U.S. Proceeds With Plan for Equity Stakes in Banks - NYTimes.com

Treasury Secretary Henry M. Paulson Jr. said Friday that the government would move ahead with a plan to buy stock in financial institutions in an effort to unfreeze the credit markets and resuscitate the economy, and it came at the end of the worst week that Wall Street had ever seen.

“We can solve this crisis,” President Bush said in an address at the Rose Garden on Friday.
Mr. Paulson made his comment shortly after he and the chairman of the Federal Reserve Bank, Ben Bernanke, met with the finance heads of the world’s major economies in Washington and promised to work together to try to ease the financial crisis that roiled the markets for the last week.

Although the Wall Street Journal is still raising some doubts.

Morgan Stanley Enters Weekend Beset by Doubts on MUFG Deal - WSJ.com

Morgan Stanley is valued at about $10.3 billion, after its shares plunged 22% on Friday. Japanese bank Mitsubishi UFJ Financial Group has agreed to pay $9 billion for what was a 21% stake when the deal was announced last month.

The stock’s freefall during the past four weeks leaves Morgan Stanley facing what it is likely to be the most fateful weekend in the investment bank’s 73-year-history. Doubts that the MUFG deal will be completed by Tuesday are haunting Morgan Stanley, despite repeated assertions from both sides that it will go through.

A person familiar with the matter said Friday that Morgan Stanley isn’t renegotiating the terms of its deal. But that could change as MUFG officials pore over Morgan Stanley’s books in New York this weekend and government officials meet in Washington about finding a way out of the global financial crisis.

All in all, it’s going to be interesting to see what happens over the weekend, and how we start off the week on Monday.

Hopefully, it’s not just blind faith on my part, but I actually think that Morgan Stanley will make it through this crisis okay … bloody and bruised, but not out of the game … obviously, our business model is going to be different than it has been for the past 73 years; but change can be a really good thing.

Perhaps this plan will make Art a little happier … but I’d like to read the actual text of the bill before I make any judgments.

Democrats offer alternative ‘no bailouts act’ - CNN.com

WASHINGTON (CNN) — A small group of Democratic House members put together an alternative to the $700 billion financial bailout measure that was defeated in the House on Monday.

Rep. Peter DeFazio, D-Oregon, said they tentatively are calling their options the “no bailouts act,” which would eliminate or reduce the risks to taxpayers in bailing out financial institutions holding bad mortgage assets.

The group introduced its bill after the House on Monday rejected a $700 billion bill that would have authorized Treasury Secretary Henry Paulson to buy bad mortgage-related securities and other assets that have been clogging credit markets worldwide.

DeFazio said he voted against Monday’s bill because taxpayer protection measures were “nonexistent.”

“I have very little confidence in Mr. Paulson,” DeFazio said at a news conference with several other House members, who want Wall Street, not taxpayers, to bear the burden of the bailout.

DeFazio said the crisis can be resolved with market discipline and regulatory functions, which would open up lending opportunities for banks and other institutions.

I did find this story on NPR’s “Marketplace” to be quite interesting as well:

John Dimsdale:The Federal Reserve, Treasury and the FDIC have broad powers to lend money, insure assets and inject cash into the banking system as they’ve already done for the likes of Bear Stearns, AIG and Wachovia … still, in theory, the Fed even has authority to do just what the congressional bailout authorizes — take bad debts off the hands of struggling banks.

• Nigel Gault: I think there is a limit to which the Fed can do that because you’re almost trying through the back door what Congress just said yesterday the government can’t do.

Global Insight economist Nigel Gault.

• Gault: The Fed could offer loans against riskier collateral, of course that is bigger and bigger risks for the taxpayer, because ultimately if the Fed makes losses, then the taxpayer would be liable.

The Fed’s other tool is to cut short-term interest rates. But they’re already so low, there’s not much power left in that tool. And using it creates a risk of inflation, says former Treasury economist Bruce Bartlett.

• Bruce Bartlett: The taxpayer is going to have to pay one way or the other, and voting down this legislation didn’t do anything to protect the taxpayer. It just means he’s going to have to pay in some other way that may be more costly than the $700 billion.

As of the middle of last week, the Fed had issued emergency loans to investment banks and insurance companies worth more than $400 billion.

From this morning’s Wall Street Journal:

‘No’ Votes Came From All Directions

The fatal “no” votes to the financial rescue package came from a strange-bedfellows coalition of lawmakers, from the most conservative to the most liberal members of the House, with a large number of representatives from low-income districts angry that Wall Street seems to be getting handouts while people getting tossed out of homes would get minimal aid.

One common strand that tied some of the diverse opponents together: a tough re-election fight. Eighteen of the 21 most vulnerable Republicans up for re-election, and 10 of the 15 Democrats in the closest races voted against the $700 billion financial rescue, illustrating the political hazards of bailing out Wall Street without offering an equally generous hand to taxpayers.

To me, this illustrates that the members of the House aren’t really thinking about doing what’s best for the country, even if it’s unpopular, but just care about protecting their jobs. It does make me wonder how many of those “no” votes would have been “yes” votes if we weren’t only 5 weeks from Election Day?

As Juvenal said in Roman times, “Two things only the people anxiously desire — bread and circuses.”

If everything was left solely to the people, do you think we’d be paying any taxes? But without tax revenue, how would vital government programs, such as say … Defense … be funded? Taxes are not popular, but are vitally important to ensure that our government can continue to function.

Putting together a plan, even an initially flawed plan that can be revised down the road, is vital to getting our economy back on track. The current ad hoc approach causes more uncertainty, more panic, more consolidation, less competition, and certainly doesn’t seem to be working.

What is going to happen if the Citigroup, Bank of America, and JP Morgan Chase acquisitions of WaMu, Wachovia, Bear Stearns and Merrill Lynch lead to their own financial troubles?

Without a Bailout Plan, What Will the Cost Be? - TIME

By voting down the proposed $700 billion financial bailout package — and causing a spectacular stock market rout — a majority of members in the House of Representatives made a clear statement that they didn’t want to put taxpayers on the hook for the failures of financial institutions.

But there’s a catch: taxpayers are already on the hook for the failures of financial institutions, and it’s possible that the bill will actually be larger without bailout legislation than with it. That’s because the regulators who mind the financial industry — the Federal Reserve, Treasury and FDIC — will keep doing what they’ve been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn’t require members of Congress to explicitly approve their actions.

The fact is that as much as many of us would like to think so, there’s truly no such thing as a free-market economy; especially not as global as the economy has become over the past 20 years.

On Monday afternoon, Wall Street basically stopped trading to watch TV — mainly CNBC — to see how the House of Representatives would vote on the $700 billion bailout package. When it first started looking like the bill would fail, the Dow plummeted 389 points, or 3.6%, in just seven minutes. If it had continued at that pace for much longer, this would have been perhaps the most harrowing day in stock market history. It didn’t, but things were still really, really bad. The Dow ended the day down 778 points, or 7%, and the S&P 500 — a better measure of the overall market — was down 107 points, or 8.8%, its worst performance since the 1987 market crash. And markets for bonds and short-term loans were, for the most part, nonexistent.

And without a market for commercial paper, there is no short-term financing available for most businesses to conduct their day-to-day business … like rent and payroll. According to a recent Bloomberg article, “a continuation of this trend would be problematic for the economy, as the commercial paper market is where entities go to raise working capital to produce goods and services.”

So what happens now? On Capitol Hill, House leaders said they’ll try again soon. Treasury Secretary Henry Paulson practically begged for a revised deal in his brief appearance after the market carnage. “Our tool kit is substantial but insufficient,” he said. The market’s traumatized reaction today may change some minds and some votes.

In asking Congress 11 days ago for the authority to spend up to $700 billion to buy troubled assets, Paulson and Fed Chairman Ben Bernanke were hoping to share some of the responsibility and the blame — and get the freedom to boost companies that weren’t already on the brink of failure. Instead, they’re back to being crisis managers for the moment — and maybe for the duration of the crisis.

That’s not all bad, especially now that most of the endangered financial institutions are commercial banks. The Federal Government has clearly defined that authorities take them over, merge them out of existence or shut them down — whereas it had to make things up as it went along with investment banks Bear Stearns and Lehman Brothers and insurer AIG. That’s why the demise of giant banks Washington Mutual and Wachovia, arranged over the past week by the FDIC, occurred in a far more orderly fashion than the non-bank meltdowns.

But orderly isn’t the same as cheap. To get Citigroup to absorb Wachovia, the FDIC agreed to share the risk on a $312 billion portfolio of loans (Citi has to eat the first $42 billion in potential losses; anything above that hits the FDIC fund).

According to a Bloomberg story last week: “It won’t take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year.” And that was BEFORE the FDIC became exposed to another $280 billion … so now the FDIC may be in need of its own $430 billion “bailout”.

Also, the fact that every big FDIC deal so far in this crisis has been different — IndyMac was allowed to fail, with only insured deposits safe; WaMu was seized, but all depositors were protected; and Wachovia was sold in a deal that protected both depositors and owners of the company’s bonds but left shareholders with very little — has left investors guessing about the fate of the rest of the banking world. Hardest hit in today’s market sell-off were regional banks like Sovereign Bancorp and National City, perhaps because they seem too small to get special FDIC treatment.

Federal authorities are going to keep doing whatever they can to keep the financial system from collapsing. Taxpayers will bear the risks and the costs of that, whether Congress votes to put them there or not. And it’s possible — although nobody can know for sure — that this ad hoc approach will end up costing more than an up-front $700 billion bailout.

So … is it better to have a imperfect plan, but a plan nonetheless? Or is it better to simply keep floating along as if the market will take care of itself, and have the government step-in again, and again, and again, with no real rhyme or reason as to which companies they help and which they don’t?

As I’m sure you’re all aware, the House of Representatives voted down the Emergency Economic Stabilization Act of 2008 (H.R. 3997) today.

People have no idea how screwed we are if the EESA 2008 doesn’t get passed.

“Bailout” was the worst marketing technique anyone could have chosen. The plan is not a taxpayer bailout of Wall Street fat-cats.

The plan should be considered as a long-term investment by the U.S. government … like the sovereign wealth funds from China and Dubai that are buying up so much stuff right now. 80-90% of the mortgages in the currently illiquid MBS’s are good. These mortgages will get paid. The MBS’s aren’t insolvent; they’re not necessarily bad investments, they’re just excessively illiquid right now.

If the government holds these securities to maturity or until the economy stabilizes, there is a very good chance that as a nation, we may actually realize a profit on most of these securities.

Currently, mark-to-market accounting rules mean that if a few of these securities are sold at deep discounts, then everyone else must write-down their values to the current market price … the problem is that right now, there really is no market, which makes it even more difficult.

It’s like having a pocket full of $500.00 bills. Most places can’t make change on them, so if you’re desperate for cash you can spend, you may be forced to sell a $500.00 for $250 in small bills. The way the current accounting rules are, then all of the $500.00 bills you own now have to be valued on the books at $250.00.

Now, if you’re sitting on a stack of $500.00 that you can’t really spend, and have just a few $20.00 bills, you might be hesitant to lend out the $20.00 bills because you don’t know when you’ll be able to realize the true value of the $500.00 bills.

This is the equivalent of commercial credit drying up.

Trading in commercial paper (which funds almost every company’s day-to-day activities) came to a near standstill last week. It will be interesting to see what happens when a business’s lines-of-credit start to dry up, and they can’t make payroll.

Please call or write your Congressional Representatives, and urge him/her to vote FOR the EESA 2008 when it comes up for a re-vote later in the week. Please tell them not to vote based on public opinion polls, but to truly vote for the good of the nation.

Our first line of defense is not missiles, is not soldiers, is not tanks. It’s a strong economy. Failing to pass this act will endanger our national security, more so than Osama bin Laden or Saddam Hussein ever could.