NEW YORK--As Citigroup Inc's (C) share price sinks, investors are wondering if the U.S. government will have to help the bank. How is an open question. Four investors that spoke to Reuters proposed some scenarios.

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The U.S. Treasury Department bought $25 billion of preferred shares and warrants from Citigroup in October when it injected capital into banks under the $700 billion Troubled Assets Relief Program.

It could buy more, boosting Citigroup's capital and a renewed government willingness to support the bank, which could soothe investors. Citigroup bonds, which have been sinking because of concern that a bailout would harm bondholders, would rally. That could lift prices for other bank bonds, reducing borrowing costs for lenders that rely on bond markets to fund themselves.

Preferred shares do not have voting rights, so a preferred stock investment would not provide new U.S. oversight over Citigroup's management or board, which some taxpayers and government officials may want. But the government could require the bank to add new management or directors as part of a deal.

A LOAN, OWNERSHIP STAKE

Another possibility is a bailout similar to the original $85 billion package for American International Group Inc. The government made a loan that would be first to be repaid if the insurer went bankrupt, and took an 80 percent ownership stake.

The loan's terms were so onerous that AIG trading partners demanded even more collateral, making the insurer's position more precarious. But a more lenient loan for Citigroup plus shares would ensure ample say for the government in how the bank is run, and would leave taxpayers with minimal risk compared to other investors.

But such an arrangement would erase much of Treasury's earlier $25 billion investment in Citigroup preferred shares. Plus, it would hurt investors in Citigroup's bonds, and bank bonds in general, making it harder for some banks to fund themselves.

LIQUIDATION

The Federal Deposit Insurance Corp has considerable leeway in how it sells a bank it seizes. It can, as with Washington Mutual Inc, protect deposits and leave bondholders and stockholders in the cold.

This could shelter the financial system from some of Citigroup's toxic assets, but at tremendous cost. No longer would any bank, or perhaps any company, be deemed "too big to fail." Investors could dump stocks of and corporate credits of all stripes, turning what could already be a deep recession into a punishing one.

"The too big to fail doctrine is being tested. Maybe the solution is to break these companies up like Ma Bell," said James Ellman, president of hedge fund Seacliff Capital in San Francisco. "Ma Bell" was a nickname for AT&T, which was broken up into smaller regional telephone companies in the 1980s.

GUARANTEES

The government could guarantee all of Citigroup's debt and derivative obligations. This could be a low-cost solution if investor confidence in Citigroup returns. But even a government guarantee does not necessarily ensure restoration of investor confidence, as Fannie Mae and Freddie Mac learned earlier this year.

A government guarantee of Citigroup derivatives could create significant questions about how to manage them. Would they wind the derivatives books down, reducing the capacity of trillions of dollars of over-the-counter derivatives markets globally? Making markets in derivatives typically involves taking some risk. Would the government be willing to expose taxpayers to such risk?

BUYING THE WORST ASSETS

The government could buy Citigroup's worst assets, perhaps at a discount, and allow an asset manager such as BlackRock Inc to manage them for taxpayers. The government's $700 billion rescue package was supposed to do that, but deciding on fair prices for the government to buy assets proved difficult. If the price is too high, taxpayers risk big losses. If the price is too low, the bank could be hobbled, and the asset values implied by the transactions could hurt other banks.

REGULATORY CHANGES

Instituting a new short-selling ban, loosening mark-to-market accounting rules for bank assets, or halting trading in credit default swaps could provide a temporary boost to banks in general, and Citigroup in particular.

"If you banned all short selling, not just new short selling, but all short selling on every company, stocks would really rally. It would force the mother of all short-covering rallies," said Seacliff's Ellman, referring to rallies where investors buy shares to cover short positions.

But such moves could fail. A recent short-selling ban did not halt declines in bank shares, and created market distortions that may have forced hedge funds to liquidate more assets. Loosening mark-to-market rules could reduce transparency in the banking system, making investors even more reluctant to sink capital into it. And halting credit default swap trading would eliminate an important source of revenue for banks, and make it harder for investors to hedge.

Courtesy Fox Business News

 
 

In all my financial interactions - be it planning for clients, training, teaching or writing, people have come to me with some problem which they think is unique.

In all the financial problems, I am able to find a pattern. Believe it or not, people more often than not choose the problem by their behavior. It is easy for me to find a pattern and say, “Well you choose your problem, did you not?“

Your financial problems would have been caused by some (or all) of the following financial behavior:

1. Not planning: The single biggest problem for most people is that they just do not plan their finances. Even if they are not happy about the results of what they have done so far, they do not change the way things are done.

2. Overspending: Many people with not very high incomes have very high ambitions. Most of this problem is because the salesmen in most shops do not tell you the price of a product, they only tell you the EMI - so anything from a plasma TV to a luxury home on the outskirts of the city are made to look cheap!

3. Not talking finance at home: Children are kept away from the finance topics at the dining table. Finance is perhaps the second most taboo topic at home! So many children grow up without knowing how much of sacrifice their parents have gone through to educate them.

4. Parents spending on education and marriage: There are just too many kids out there who believe that they need to worry about savings, investment and life insurance only at the age of 32 plus. This means your father, father-in-law or a bank loan has funded your education and marriage. Kids should take on financial responsibility at a much younger age than what is happening currently.

5. Marriage between financially incompatible people: Most marriages under stress are actually under financial stress. Either the husband or the wife is from a rich background and the other partner cannot understand or cope with the spending pattern. It is necessary to match people financially before marriage.

6. Delaying saving for retirement: “I am only 27 years old why should I think of retirement“ seems to be a very valid refrain for many 32-year olds! Every year that you delay in investing the greater the amount that you will have to save later in your life. Till the age of 32 it might be feasible for you to catch up, but after some time the amount that you need to save for retirement just flies away.

7. Very little life insurance: With all the risks of life styles, travel, etc. illness and premature death are common. We all have classmates who had heart attack at the age of 32 but still pretend that we do not need life or medical insurance.

8. Not prepared for medical emergencies: Normally big emergencies - financially speaking - are medical emergencies. Being unprepared for them - by not having an emergency fund is quite common.

9. Falling prey to financial pitches: The quality of pitches has improved! Aggressive young kids are recruited by brokerage houses, banks, mutual funds, life insurance companies, etc. and all these kids are selling mutual funds, life insurance, portfolio management schemes, structured products, et al.

10. Buying financial products from “obligated persons”: This is perhaps one of the worst things you can do in your financial life. A friend, relative, neighbor, colleague who has been doing something else suddenly becomes a financial guru because they have become an agent! You are saddled with a dud product for life!

11. Financial illiteracy: Most people do not wish to know or learn about financial products. They simply ask, Where do I have to sign? So buying a mutual fund is easier than buying life insurance!

12. Ignoring small numbers for too long: What difference will it make if I save $100 a month? Well over a long period it could make you a millionaire! So start early and invest wisely. It will make you rich. That is the power of compounding.

13. Urgent vs important: Most expenses, which look urgent, are perhaps not so important - the shirt or shoe at a sale. That luxury item which was being offered at 30% discount is such an example. These small leakages are all reducing the amount of money you will have for the bigger things like education or retirement.

14. Focusing too much on money: Money is no longer a commodity to buy things. It is a scorecard of one`s life. That will cause stress, and yoga might help. However if you will seek a branded yoga teacher - so that your friends think you have arrived, yoga it self could cause financial stress!

Courtesy http://www.richdadblog.com/

 
 

As we all know, the world changed drastically on Sept. 11, 2001, when the twin towers of the World Trade Center fell.

This year, on the eve of Sept. 11, the twin towers of Fannie Mae and Freddie Mac crumbled. Then, on Sept. 15, Lehman Brothers and Merrill Lynch disappeared. Actually, that was a triple-tower collapse if you count AIG.

In a few years, the biggest pair of towers will collapse: Social Security and Medicare. Even today, they're looking shaky. How many ground zeros can we as people, a nation, and a world withstand before we admit something is very wrong with our global financial systems? What will it take to wake us up?

Government Can't Fix It

Personally, I believe the biggest it's a problem that so many Americans are looking to this year's presidential candidates, Barack Obama and John McCain, to save our financial system. How did we become so financially weak that we surrender our economic independence to politicians? Where does it say in the Constitution that the government should solve our financial problems?

And why have so many people throughout the world come to expect financial life-support from their political leaders? It seems most people will vote for anyone who promises a chicken in every pot and a guaranteed mortgage payment.

We're in the midst of a problem neither candidate can solve: A lack of comprehensive financial education in our school systems. What else explains the economic blunders committed by our political and financial leaders? Or why so many consumers are in debt up to their eyeballs? Or why millions of people expect a quick government fix of some kind?

Under Water

A few months ago, a friend of mine from Hawaii asked me if I wanted to buy his new powerboat with twin motors. Apparently, in late 2007, he purchased it brand new for approximately $85,000. His plan was to refinance his house when it appreciated in value and use the difference to pay for the boat.

Failing to obtain new financing, he called to ask me if I would buy the boat from him -- just take over the payments and it was mine. I passed, and the bank eventually repossessed his boat. Later, his wife called to tell me he's now having problems making his mortgage payments. Apparently, my friend planned to pay for his house the same way he planned on paying for the boat, by refinancing his debt.

I mention this story because it illustrates the problem Obama or McCain face: Limited financial education and diminished financial common sense. Apparently, my and the nation's business leaders all went to same school of finance.

A Cynical Aside

If you want to know why the towers of American capitalism are crumbling, I recommend reading "The Creature from Jekyll Island" by G. Edward Griffin. It's not an easy book to find, but once you start reading it's to put down. In fact, in many ways it's a murder mystery about the financial "murder" of the middle class.

A very important lesson in the book is how political leaders use financial spin to deceive the public. The very, very rich use the system to legally steal from the rest of us by appealing to our sense of patriotism. When our leaders say, "We're bailing out Fannie Mae and Freddie Mac because we want to protect the American people," they really mean "We're saving our rich friends."

All the bankers and politicians have to do is wave the red, white, and blue, play a few bars of "Yankee Doodle," and the masses get teary-eyed and pledge greater allegiance to legalized robbery. Yes, it's true that ignorance is bliss -- but ignorance is also expensive, and it cost us our freedom.

Freedom at Peril

A bailout can be different things. First, printing more money is a kind of bailout that leads to higher inflation. Rather than protecting people, it makes life for the poor and middle class more expensive. The other kind of bailout is protection for our rich and incompetent friends. If you or I fail at business, we fail. If we cheat and fail, we go to jail. But if you're rich and politically connected, your incompetence may be protected by a government bailout.

As a former Marine and a Vietnam War veteran, it saddens me to see some of the freedoms I thought I went to war to protect being stolen from us by bankers and politicians. Unfortunately, few Americans know the difference between the words "nationalize" and "socialize." Socialize means we turn more of our personal powers over to Big Brother, not free enterprise. It means we as a people grow weaker and need a higher power -- the same power that got us into this mess -- to protect us.

In short, when the towers of Fannie, Freddie, Merrill, Lehman, and AIG came crashing down, more came down than just money. What we're losing is the very freedom this country was founded on, and what most of the world yearns for.

Courtesy Robert Kiyosaki