I Want a Bailout


Suppose it’s August 2007. You apply for a line of credit against the equity in your existing home. CitiBank approves a line of credit that allows you to invest in some undeveloped property and still have something left for building a modest vacation home where you can be near your family for part of the year.

Fast forward to November 2008. CitiBank sends you a letter. It claims that the venerable financial institution has reviewed your assets and concluded that you are no longer in a position financially to meet payments on the balance of your line of credit, should you wish to borrow that money. They’ve decided to zero out your balance, effective November 5. The letter you hold in your hands arrived by regular mail on November 6.

You’re stuck. You have a piece of property with no prospect now of building. It’s unlikely that you could sell it for what you paid for it a year ago. And, in any case, you don’t want to sell it; you want to pursue your dream. But CitiBank has revoked your line of credit. This despite the fact that you’ve made all your monthly payments on schedule for over a year.

You wonder what changes in your financial situation could have reversed CitiBank’s kind disposition toward you. And then it occurs to you. Maybe it’s not your financial condition that has them worried, but their own financial condition that has them over the barrel. Maybe they’re afraid you’ll write a check against your line of credit and they won’t be able to cover it.

Sure enough, a week later you learn that CitiBank has recently laid off tens of thousands of employees and that they lost billions of dollars during the past twelve months. “Aha!” you think. “So that’s what happened!”

Is it any consolation to know that they freaked, and then dissembled? Of course not. You’re still stuck. You secretly hope that CitiBank will be held accountable, that maybe the CEO will have to look for work.

And then you learn today that CitiBank has been offered a bailout, because the economy needs it. Isn’ that nice?

The above scenario has been played out for countless customers of CitiBank. The details vary but the shenanigans are the same. Some customers “took out” a line of credit to have greater security for a rainy day. Others to meet expenses for children in college. And others to make essential repairs on the only home they’ll ever own. Every one of the customers victimized by CitiBank’s recklessness deserves a bailout as much as CitiBank. But what are the chances they’ll be getting a letter in the next week saying, “We’re happy to announce that your original line of credit has been reinstated?”

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Ka-ching! Stock Market vs. Credit Market


Near as I can tell, the “bailout,” “rescue,” or whatever, is about shoring up the “credit market.” Banks have to make loans, and they have to have money to make loans. Some pundits are saying that the stock market plunge we’ve been seeing, including the dramatic dive happening today, is not a measure of the prospects for this $700 billion rescue gamble. That’s because they’re splitting off what’s happening on Wall Street with the real problem that is all about credit.

I’m not convinced that the two are unrelated. I’m more inclined to think that the near-panic we’re seeing as people pull their money out of stocks means that people will be very slow to take out new loans, even with the bailout/rescue.

Who wants to borrow money in today’s climate? Time will tell.

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