Prometheus 6

Read Paul Krugman's explanation of why the outsized profits just reported by Goldman Sachs and the investment banks is a bad sign for our banking system...

But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

You may recall that earlier this year there was a big debate about how to get the banks lending again. Some analysts, myself included, argued that at least some major banks needed a large injection of capital from taxpayers, and that the only way to do this was to temporarily nationalize the most troubled banks. The debate faded out, however, after Citigroup and Bank of America, the banking system’s weakest links, announced surprise profits. All was well, we were told, now that the banks were profitable again.

But a funny thing happened on the way back to a sound banking system: last week both Citi and BofA announced losses in the third quarter.

...then read why Citibank's losses in particular seem to be a case of just desserts...if they, rather than we, actually suffered the losses, that is.

It’s worth recalling at this point that Mike Hudson won the Polk Award for his 10,000-word expose, “Banking on Misery: Citigroup, Wall Street, and the Fleecing of the South,” in the summer 2003 issue of tiny Southern Exposure magazine.

This is the story that the conventional business press never got around to telling, as I discussed in this 2007 post, and still hasn’t to this very day.

That’s too bad, because Citigroup’s long-term shareholders, aka, “lambs led to the slaughter,” (get a 10-year chart here) would have known that Citigroup was built on unsustainable (not to mention immoral) predatory lending from the ground up. Sandy Weill and sidekick Jaime Dimon started with Commercial Credit Corp. in 1986, then bought Primerica in 1988, before merging with Citicorp a decade later, and then bought the notorious Associates First Capital in 2000. All three firms had a history of regulatory trouble and all became merged into Citigroup’s low-end arm, CitiFinancial, which was, and remains, a giant.