Once again we find ourselves in the midst of a panic. After a long series of financial firms getting bailed out because of poor risk management and greed, now Citigroup prepares to receive tax payer funds in the amount of $100B or more. Pandit, Citigroup’s CEO, has been unable to restore confidence or restructure the international banking giant’s numerous units to restore stability, let alone profitability.
Even after numerous capital injections, receiving TARP funds and having access to all of the Federal Reserve programs, Citigroup is unable to stay afloat on its own.
There is a problem, though. Citigroup is incredibly interconnected. More than Lehman, AIG, Washington Mutual, Bear Stearns, etc. If they fail it could have a cataclysmic effect on the world financial system.
With Citigroup’s shares trading below $4 on Friday, the company is in dire trouble. Down over 90% from its high a year ago with no way to restore confidence. The stock plunge has created enough of a panic to break the 2002-2003 technical support level of 776 on the S&P 500.
Bailing out Citigroup will likely be more expensive than all the other bail outs combined. It is the fifth largest US bank and has over a trillion dollars in assets, many of which are defunct. Other firms have offered to step in, but only if the US government buys all the bad debt.
What’s next? Expect more business failures and the S&P to trade down to 600 and possibly 450. Those are the next major levels of chart support. This will be the worst recession the US has seen in at least 50 years.