Friday, November 21, 2008

An FDIC seizure of Citigroup could doom the financial system

Morningstar explains how nationalization of Citigroup could make things very bad for Bank of America and JPMorgan Chase:

And the Bronte Capital blog has this to say:
If Sheila Bair was to confiscate a really big bank and cancel all the parent company liabilities then no other bank in America would be able to raise parent company debt. Indeed I think that has been the case ever since Sheila Bair did the reckless and irresponsible takeover of Washington Mutual… but it would certainly be the case if the parent company liabilities of Citigroup were cancelled.

And that would be a huge decision indeed because then every bank with parent company liabilities (meaning almost every bank in North America) would fail.
Update to the video: It turns out to be a $20 billion dollar check.

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