Two years into the White House, with the dominating control of both House and Senate, Obama and the Democratic Party are facing a difficult mid-term election. Americans across the country are unhappy. Yes, Chicago lost the Olympic bid. Yes, the Climate Treat did not sign at the UN Summit. More problems are showing up when the landmark Health Bill starts to implement. Then there was the worst oil spill in Mexican Gulf.
But Stupid! It is the poor economy that hurts and angers the people.
Obama clearly understands the danger of this troubled economy to the fate of his Democrats. He is in rush to propose hundreds of billions of dollars to jump up the sick economy and try to change voter’s perceptions. He knows it is people’s perception to decide their vote. Remember, Obama was awarded a Nobel Prize not to what he has achieved but to a wishful perception he may achieve in future.
Now, at this crucial moment, which of the followings do you perceive Obama’s true policy on US businesses and economy?
A. Anti-business and manipulating the economy to achieve his Democratic agenda. He has increased Union power by imposing hefty tariffs on importing steels, tires, etc. He kept government’s expansion by tax hikes. He wants to have total government control over banks and investments through demonizing and a notorious financial bill.
B. Pro-business and pushing to revive US superpower economy. He punished Toyota over brake recalls in order to help American auto makers GM, Ford, and to take the Japanese profits back to US car dealers. He pressed to get $30 billion compensation from the worst BP oil spill (which then mysteriously disappeared after the damage fund setup and an American becoming BP CEO). He did all he can to give everyone the health coverage and extend the unemployment benefits several times so that the government programs can continue.
Actually, the answer relies on C and C is Citibank.
Citibank was hardest hit during the worst financial crisis. It lost billions of money and its share price plunged from $50 to $1. US government had to provide $45 billion TARP money and other guaranties to rescue Citibank. The backing of government and the infusion of billions of dollars stabilized the business of Citibank. In return, Citibank restructured its business and streamlined its strategy. More than a year ago, Citi repaid US $20 billion and converted the remaining $25 billion into 7.7 billion shares of Citibank common stocks. Today, Citibank is among the best funded banks and thriving through aggressive international expansion.
In March 2010, US Treasury announced plan to sell its Citi common share holdings to the open market in a slow and controlled manner. Since its selling started in late April, the US has sold a total of 4.1 billion shares. In average, Citi’s daily trading volume is about 500 million shares, adding the total trade volume in the same period to around 60 billion shares. In another word, the government’s share selling is less than 7% of total trading so far. Because of the government disposing, the Citi share price was pushed down ~30% from $5 to $3.6. In fact, the share prices of all major financials have been pushed down to mirror the trend of Citi until today.
Looking at this, one must question the true intention of the share selling of the Obama government. It seems to have achieved its punishment of Citi, imposing the control over the banks and vandalizing American’s anger towards the greedy bankers. However, the tax payers did not make the money they supposed to make because of the significant drop in share price. The Citi and the entire financial industry got the punishment and had to operate under extensive stress. The banks had no choice but to protest themselves by restricting business lending. When there is lack of funds for lending, businesses are hard to grow or even to survive. As a result, the entire US economy suffers. The only beneficiaries from all these actions are government officials, they have firmly maintained their supreme grasp to control and manipulate the banks and other financial institutions.
It is true that banking and investment alone cannot turn around this poor economy. However, it is definitely impossible to thrive the economy, if the banks and financial institutions are depressed under water to nervously test the deep bottom. The new Financial Bill and the regulations have drawn the no-crossing lines for them, but the Obama government is still holding one of their legs.
Now, the government has two different options to show it is business friendly, instead of the current slow selling. First, if Obama government still wants to keep control of banks and enjoy its power, it should halt all Citi share selling right now for 5 years and might even “buy back” more bank shares. This will stop the slow bleeding of Citi and other banks. Several years down the road, the share prices of all the banks will be recovered and irreversible. The government can then sell these shares at a much higher price and it gets both control and the money.
The other option is to sell all the remaining Citi holdings immediately at once. Today, Citibank’s business is fundamentally health and profitable. It expands rapidly in the emerging Asia, Latin America, Africa markets. Citibank certainly wants to buy some shares back from government. Sovereign funds and big investment funds are eager to acquire Citi share as well. They can purchase the shares slowly in the open market. Why not complete this process now at one time? Once the government holding is depleted, the huge burden and pressure on top of Citibank and other financial institutions will be removed. They will then be motivated to accelerate their business lending and investment activities. This will jump up the entire US economy. Worry about another financial crisis? The new Financial Bill will hold the line for the banks to behave in good faith. Look for a win-win situation, nothing seems better and more effective. Banks get the relief, tax payers get more money quickly, the US economy will get a big boost, and the government takes all the credit.
Does Obama truly wants to jump start the US economy?
C is the answer.
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