Established on January 5, 2009, the NASDAQ OMX government relief index that tracks companies that are participating in the US government's financial relief plan (symbol: QGRI) is down 36% since inception. The US Treasury is in the process of becoming the proud owner of some 36% of Citigroup's common stock, after pouring some $45 billion into the company. Analysts say the U.S. government’s third attempt to help rescue Citigroup Inc. won’t stanch the company’s losses, which will continue to swell and may lead the bank to require more money in coming months. Investors that have stuck with Citigroup on the hope that government intervention would turn around the company have lost some 97% of their investment since the peak in the stock in 2007. How about a double short on the NASDAQ OMX government relief index?
The pattern for AIG is the same. CNN, in an article called "The Bailout that Won't Quit" pointed out that AIG has already blown through the $152.2 billion bailout it already received from the government, and it is likely the US government will take an even bigger stake to wield more control over the world's largest insurer. AIG and the government know that the current plan is not viable. The speculation now is that the US government will put together a Citigroup-like package for AIG, or the insurer may turn over some of its divisions to the government as payment on the loans, or the government may also opt to pump more cash into the insurer--doubtless with the same result. Too big to fail is becoming a black hole of government support.
No wonder that Paul Kedrosky of the Infectious Greed blog and others openly wonder if the financial markets might not be openly against the Obama Administration. Fred Barnes on Fox News has also observed that the first reaction to President Obama's speeches is to fall. US stock prices dropped 800 points since Barak Obama became president, and more like 2,200 points since he was elected. To some, that is a financial market vote of no confidence on his economic policies.
Or, it could be that the problem (which has long ago since gone global) is simply too big for any one government to make a short-term dent in. The New York Times (as well as Bloomberg) estimates that the US government has committed $8.8 trillion (some 68% of the US GDP) and has already spent some $2 trillion on the problem. Yet economists like James Gailbraith and Nouriel Roubini claim that much more is needed. Our question to Mssrs Gailbraith and Roubini is, before you insist that more government money is needed, come up with a suggestion as to how in the world the US will be able to pay for this.
AIG: The Bailout that Won't Quit
Government Relief Index Not Looking Good
Do the Markets Hate Obama?
Total Bailout Tab