Wednesday, October 31, 2007

Should Citi Pay for its Mistakes

There is one point of view that deems that the creation of the M-LEC to bail-out Citi and other banks from their SIV crisis is a concept that interferes with the free market. The other side of the argument promotes the need for stability in the market place to avoid a string of cascading failures underlines the need for the creation of the SIV Superfund.

From a risk tolerance perspective, why should banks such as Citi be bailed out for their own mistakes? Shouldn’t the shareholders and the company pay the price in a free market economy? Isn’t the SIV bailout effectively a form of capital-based socialism; where firms avoid the consequences of their decisions? Certainly, the financial market would not offer group bailouts for individual who can not meet their financial obligations; why should it be any different for a large bank.

Allan Sloan of Fortune takes Citi to the task in his recent article:

Citigroup: 'Gimme shelter'