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GOVERNMENT TAKING STAKE IN CITIGROUP

Bloomberg is reporting that the U.S. government is taking up to a 40% stake in Citi.   Futures are trading up over 1% on the news.  The story is still developing, but the market clearly views this as a positive sign that the bank won’t be fully nationalized any time soon.   This looks like another attempt to buy time for Citi while we hope that the market rebounds.  Personally, I don’t see the point.  A 40% stake is effectively a nationalization.  Why not just take the bank over completely and remove the Citibank doubt from the market?  Better yet, why not perform full blown triage on the entire system, eliminate the bad banks and guarantee the good ones.  Eliminate the uncertainty surrounding the banks.   This is a development positive for now, but if the market doesn’t improve or continues to worsen this hesitation to be proactive will only make things worse in the long-run.

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