Muddle through
There is a final choice: carry on muddling through on a case-by-case basis from one institutional failure to the next and hope that the public and private sector can each find a way to play a positive role.
Didn’t this just happen with Citigroup and Wachovia?
There are four interesting aspects to this deal. First, Citigroup appears to have recast itself as a winner in the crisis, one of the strong, having absorbed $55 billion in write-downs and losses, and raised $50 billion in tier 1 equity.
Second, the deal marks the folding of the last of the US’s big thrifts into the arms of one of the country’s strongest and largest banks. Following JPMorgan’s takeover of Washington Mutual’s banking operations and Bank of America’s acquisition of Countrywide, the corpse of Golden West, which brought down Wachovia, now sleeps inside Citi.
At the same time, Bradford & Bingley, the last of the large UK building societies – on which the early US thrift savings associations were modelled – to have floundered following demutualization and reinvention as a bank, has been nationalized. Could this be a natural break in the fire?
Third, at a time when fear is widespread that the full extent of many banks’ bad loan problems has yet to be revealed, Citi seems to be confident of its own capacity to identify and value the problem positions inside Wachovia’s banking subsidiaries’ $700 billion of banking assets.