For those who are familiar with the corporate scandals from the earlier part of this decade, imagine this scenario:
- A company–BFD (Big Freakin Deal) Enterprises–has been profitable for many years.
- BFD’s huge profit margin has been in large part due to their risky investments, which–during the upside–gave stockholders major returns, as double-digit annual returns were not uncommon. And the dividends were sweet.
- Unfortunately, that risky business model had a downside: now that the assets are effectively worthless, BFD is in a cash crunch, and unable to pay investors. In fact, they are needing to write down the value of those risky assets, and that puts a crimp on their ability to raise more capital.
- BFD looks to create a separate entity so they can offload their bad assets and clean up their balance sheet.
When Enron did this, we prosecuted their execs. Kenneth Lay was convicted, and died of a heart attack shortly thereafter. Jeffrey Skilling will likely die in prison.
Well, what is the difference between what Enron did and what Citigroup is trying to do? This time, they are asking the government to help back the fraud.
Here are some observations:
- Citigroup is bankrupt. Unless government gives them a taxpayer-funded lifeline, they are Washington Mutual on steroids. That they would attempt to offload their bad assets is a clear move of desperation: like Lehman Brothers, they want to be bought. Like Lehman Brothers, they cannot find a buyer because everyone knows they have both big-time exposure to both the subprime mortgage and consumer credit markets.
- Under no circumstances ought we support such a bailout. So far, the government has committed over $3 trillion toward capital injections and bailouts, and has put the taxpayer on the hook for nearly $10 trillion in assets held by Fannie, Freddie, AIG, Bear Stearns, and Wachovia.
- That the government is even considering participating in the fraud–they are colluding with Citigroup to put you on the hook for their bad bets–is proof positive that they don’t care one iota about Americans.
- If none of the Republicans grill incoming Treasury Secretary Timothy Geithner about this, they will deserve to be outnumbered by a filibuster-proof majority.
- If the government approves this, then we need to demand the immediate release of former Enron CEO Jeffrey Skilling and CFO Andrew Fastow, and call for a posthumous pardon of former CEO Kenneth Lay.
The only difference between Enron and Citigroup is government collusion in the latter.