More Bank Marketing

By James Kwak

I’ve already criticized Citigroup CEO Vikram Pandit’s testimony before the TARP Congressional Oversight Panel on Thursday, but there’s one thing I left out. Citigroup, like other banks not named Goldman Sachs, is attempting to cloak itself in a mantle of goodness. Pandit’s testimony included several bullet points discussing all the wonderful things that Citigroup is doing for ordinary Americans. For example: “In 2009, we provided $439.8 billion of new credit in the U.S., including approximately $80.5 billion in new mortgages and $80.1 billion in new credit card lending.”

There are two problems with these kinds of numbers. One is that I have no idea what to compare them to. I looked through Citigroup’s most recent financial supplement and was unable to find any numbers for “new credit,” let alone those numbers in particular. For a credit card, what does “new credit” mean? If I have no balance, and then I lose my job so I run up $20,000 on my Citi credit card, is that $20,000 in new credit? Or does new credit only include new cards issued? If so, how does it compare to credit taken away by closing people’s accounts or reducing their credit limits?

The second is that whatever Pandit says about “new credit,” it’s hard to argue that credit didn’t contract in 2009. For example, total consumer loans (p. 27) fell from $484 billion at the end of 2008 to $443 billion at the end of 2009, and total corporate loans fell from $218 billion to $177 billion, while money deposited with other banks (including the Federal Reserve) grew by $100 billion. Now, this is not all Citigroup’s fault. For one thing, they were overextended, so de-leveraging made sense from a balance sheet perspective, and for another there may have been a decline in demand for credit. But I’m still troubled by this attempt to pretend that Citi was fueling the economic recovery by stepping up lending.

Update: A friend who I believe has plenty of credit and no need for more writes in to say that the credit line on her Citibank credit card was just increased by $6,000, even though she never used more than one-third of her old credit line. She was wondering why until she realized that the $6,000 counts as “new credit” to Citi.

24 responses to “More Bank Marketing

  1. “there may have been a decline in demand for credit”

    Ya think?

    Also, lending is a lagging indicator. It doesn’t “fuel economic recovery,” and never has. Lending follows economic recovery. Look at the data. But I guess if you did that, you wouldn’t be able to blame the Big Bad Banks for suppressing the economic recovery. So better to just ignore the data, and stick to your preferred narrative!

  2. ???? To complain that Citi was pretending to fuel the ‘recovery’ is clearly not equivalent to blaming the banks, big, bad or otherwise for suppressing the recovery.

    *** Shall we note that the Big Banks were bad, which is a significant part of why we need to recover. Big banks, along with other big business, has been notoriously disingenuous in what they have foisted off as ‘facts’ whether to the public directly or indirectly in congressional ‘testimony.’

    These truisms should not be construed as letting Greenspan, Bush, Geithner, Summers, Bernanke or, for his ignorance in economic matters which should have been rectified to a much higher degree over the pas couple of years, Obama.

  3. Oh, dear… Letting folks off the hook was where I was going with the last paragraph. And I see subject-verb agreement error in the second paragraph. Old Guys shouldn’t try to write this late at night.

  4. lending is a lagging indicator. It doesn’t “fuel economic recovery,” and never has. Lending follows economic recovery.

    Then why did your masters Paulson and Bernanke claim it did? Why did they scream for the Bailout on those grounds? Why didn’t I see your masters at the “Big Bad Banks” correcting them when they were screaming that?

    Oh, that’s right…..

  5. xinglongnite

    Why blame Citi? Blame those good guys who have been saving and deleveraging.

  6. This post and the first response are a classic example in American political dialogue.

    First, the post provides some data and questions assertions by a powerful interest.

    Then, the first response ridicules the post for questioning the powerful interest.

    We’re all smart enough and care enough to do better than that. And we can all afford to question our own assumptions, understand things better, and change our minds. Even if it means agreeing with someone we don’t like. Once in a while?

  7. Pandit’s testimony is Oscar-worthy

    March 7, 2010 – New York Post – excerpt

    “The national celebration of creative filmmaking, illusion and escape — better known as the Oscars — takes place tonight. But before the official awards ceremony kicks off, American taxpayers were treated to a best-acting performance by Vikram Pandit, Citigroup’s chief executive, who testified last week on Capitol Hill that short sellers were to blame for the near-collapse of the nation’s biggest bank back in 2008.

    Eighteen months after the implosion of the global financial system, Pandit is still promoting the fiction that Citi’s problems were all market-induced. In his words: “This was not a fundamental situation. It was not about the capital we had, not about the funding we had at that time.” Really?

    None too happy to hear Pandit’s “blame the shorts” excuse again,(Elizabeth) Warren fired back. “Is Citi special?” she tauntingly asked Pandit. If not, why was it the only major bank to need two huge bailouts and another $300 billion in government guarantees to stay afloat in the fall of 2008?”

    ttp://tinyurl.com/yh4v89t

  8. My thought for the weekend:

    America seems to be trapped in a — mythology — that citizens must choose between the polar extremes of a “free-market” economy (espoused by Ayn Rand, Greenspan, Cato folks) and “big government” as represented by Stalinist Russia.

    Surely it can do better.

  9. Free market only works in the long run when the appropriate rules and regs are in place and inforced to keep the ‘greed is good’ mentality of base human instict intact. The repealing of Glass-Segal, then Graham-Leach, and the Goldman-led reglatory capture all have contributed to the let down of the guard against greed…what we need is an Andrew Jackson type to take on the oligarchs… or Teddy Rosevelt, who one said ““Corporation cunning has developed faster than the law of nation or state. Corporations have found ways to steal long before we have found that they were susceptible to punishment for theft. But sooner or later, unless there is a season of readjustment, there will come a riotous, wicked, murderous day of atonement…. These fools on Wall Street think that they can go on forever! They can’t!”

  10. last word in first sentence – should read “in check” vs. intact.

  11. What’s more surprising: that Pandit doesn’t get called on these numbers, or that he still has a job? If the regulators know the banks are insolvent and government economists realize credit is demand- rather than supply-constrained, this kind of testimony is standard issue pre-approved keep-the-rubes-happy pablum. Substitute ‘jobs saved or created’ and shuffle the players, and above all, don’t expect Washington to treat the public like adults. Blaming the shorts is a flaming whopper, but massaging the lending numbers is just Baseline BS.

  12. Vladimir Ilyich Lenin wrote:

    “A lie told often enough becomes the truth.”

    (1870 – 1924)

  13. As the old saying goes, “the markets can stay irrational longer than you can stay solvent.”

  14. mondo pinion

    Excellent observation, tippygolden. Kinda reminds one of the red/blue split, eh? I think someone is doing the old “divide and conquer” game on us all — with much help from the media, which likes to stay in the exact center of the teeter totter –i e the power position. . . It is really weird how close so many of the elections have been lately. What are the chances of that just happening ?

    Interesting that we are split by theoretical divides nowadays. For centuries they divided-and-controlled us by plain old racism, classism, sexism –but we are well on our way to ending the power of those. And looking at HOW we are overcoming them may give us a clue how to escape the trap we are in now. We didn’t analyze those socially-manufactured “problems” until we finally solved them — instead, we just got solid with each other, and quit buying into the idea of a ‘best’ race, class, or gender. Vive la dif.

    So — can we get solid with each other across the red/blue and economic disagreements? It occurred to me recently that if all the Democrats joined the Tea Party movement, together we could probably regain control of Washington.

    I mean, really, neither social-Darwinist Ayn Rand nor borg Stalin are neighborly, are they? That’s gotta tell you something. If we ask ourselves what we want government to do, and not do, right in our own neighborhood, I think we can find answers to the bigger questions.

  15. Hillbilly Darrell

    What I find most interesting is that we are still having this conversation and debate-about whether or not the banks are lending, whether or not business want or need lending, whether of not lending has increased or decreased relative to whatever measure…bla…bla…bla…

    Does no one else see the utter absurdity of even having this discussion at all, let alone almost 3 years on? The US Government and the US citizenry (both individual and business) have completely and utterly acquiesed to the holistic outsourcing of the control of their entire financial and economic system infrastructure to the largest banks. While also increasingly socializing the risk, and privatizing the profits to the benefit of these same banks.

    Duh. The elephant in the living room is that the larger financial system should be treated and regulated as all utilities are. Every US citizen and every US business and every US government entity needs access to currency, capital, loans, deposits, transaction facilitation, etc. The financial system is far too important to far too many for the US to abrogate its responsibilities, and BEG big banks to lend or do anything else, often after another series of concessions-further socialization of risk, and privatization of profits. Does no one else seriously see problems with the US government lacking control or influence in the US financial and economic infrastructure? Of having to depend on the whims of the big banks for such exceedingly critical national infrastructure?

    Utilities are excruciatingly highly regulated. Gas and electric utilities can not increase rates without demonstrating need, and receiving approval from public utilities commissions-following hearings and process. These same utilities, due to public policy considerations and the universal understanding of their critical infrastructure status-i.e. nothing happens in the economy without their services, are affirmatively prohibited from even thinking about engaging in the nonsense the banks continue to get away with. They simply can’t. We have recognized that natural gas and electric service are critical infrastructure-and, we regulate supply, pricing, distribution, and even service terms-i.e. a utility can not simply turn a customer off for non-payment when its 20 below zero-there are unique notice and due process logistics for this to occur.

    If gas and electric utilities operated like US banks are allowed to operate, rates would fluctuate wildly, it could cost $100,000.00 to get service connected, a never ending medley of fees could be extracted, blackouts would occur if utility companies decide they’re not making enough money serving this or that market, and simply refuse to generate or distribute energy-having “re-allocated” resources elsewhere for larger gain… It would be a veritable nightmare.

    Why is the financial and economic system infrastructure different? I submit, that it is not. And, many civilized countries treat it accordingly, for instance Canada, where I now live. The Canadian banking system is regulated far more like utilities are than the US system. Canadian financial institutions can’t even think about doing a great deal of what US banks routinely get away with.

    Now, I have zero confidence that the US government will actually reassert its control over the US financial and economic infrastructure until the whole thing implodes, and there is no other choice. Financial services now generates 40% of US GDP. The highest paid participants in the economy work at large financial institutions. The largest employers in many communities are these same institutions.

    And, as for regulation, just as with utilities, regualte activity, not corporate entity type. This would completely eliminate regulatory arbitrage and shopping, and business structure gymnastics-Goldman spontaneously becoming a bank holding company. Specifically, if you “sell” mortgages, here is the standard-build a competitive business model around these parameters…..

    Good luck!

  16. Good analogy re electric utilities. Actually we did experience the deregulating of utilities in California a few years ago. An Enron took advantage of the situation in exactly the ways you describe: blackouts when there was enough electricity — because by diverting the generation out of the state and then back in at a higher price they made more money; having generators go off-line for “maintenance” at times of peak electricity need so again they could charge more. We have experienced exactly that… with similar consequences in finance. But Enron did not get bailed out when they were discovered: they went bankrupt. And the world did not end: a few people went to jail! And many lost their pensions….

    Lack of proper regulation does open the way to greed and needless destruction.

  17. Excellent point!

  18. Tippy Golden

    “… eh?”

    lol, a bit of dialect asserting itself

  19. mondo pinion

    Yeah — I have dual citizenship so I have “A” at each end. As in
    “Hey, get outta the way, eh?” I’m trying to lose the hey.

  20. … which will, unfortunately, be continually ignored by those in power because the lobbyists sure know how to throw around the cash!

  21. mondo pinion

    Yup. That’s why it’s absurd to talk about fixing things by passing laws. So now what ?

  22. Hillbilly Darrell

    Push the clutch in, gas her to 12,000 RPMs and hold it….the sooner, the better. Just like the alcoholic or addict, no real change is possible until rock bottom has been hit, and there is no choice but to change, or die………..

  23. Just more plutocratic double talk and smoke and mirrors, but what do we expect? I would have been disappointed if good old Vikram has said otherwise. This is just more manure to add to the mountain that continues to build. The question is, when are we going to have a “fact checker” running as a subtext to Congressional testamony? Just think what they might say if they knew that every word was being parsed, and every statement fact-checked simultaneously with its delivery. Now, that would be progress!!

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