What Citi really got from the bailout
TEXT OF INTERVIEW
Bill Radke: Bankers and bank regulators are back on Capitol Hill today testifying before the government’s bailout watchdog panel. The government has spent $45 billion to bail out Citigroup. And at today’s meeting, Citigroup CEO, Vikram Pandit is, among other things, thanking Congress for saving his company. Marketplace’s Nancy Marshall Genzer joins us live from Washington. Good morning.
Nancy Marshall Genzer: Good morning.
Radke: Pandit is answering questions about the effect of the government’s money on his company. What did that money really do?
Marshall Genzer: Well, Citigroup has gotten something else, Bill, along with the money, that’s absolutely priceless: a government safety net. Elizabeth Warren chairs the Congressional Oversight Panel on the bailout, and here’s what she said at the hearing earlier this morning:
Elizabeth Warren: Citigroup enjoys an explicit government guarantee. Evidence thus far suggests that the United Sates government will bear any burden and pay any price to ensure that Citicorp does not fail.
Radke: So then Nancy, the question is I guess did that government guarantee change Citigroup’s behavior?
Marshall Genzer: Some economists say it has. They say banks actually take more risk if they have the government backing them up. Kind of ironic. Douglas Diamond is an economist at the University of Chicago. He says here’s what’s going through a bank regulator’s mind:
Douglas Diamond: I try to make the banks safer by guaranteeing their deposits or their bonds. I end up making them riskier because the banks start to gamble more, unless I regulate it away.
Radke: So Nancy, he’s talking about banks beyond Citigroup, right? Other banks that took out bailout money?
Marshall Genzer: Yeah, this could apply to those other banks. Diamond says at first, banks were too risk-averse, and the government wanted them to take more risks to bolster the economy. They are starting to do that. Now the trick is to keep the risk-taking from getting out of hand, because we sure don’t want another financial crisis.
Radke: No, I suppose that’s true. Marketplace’s Nancy Marshall Genzer. Thanks a lot.
Marshall Genzer: You’re welcome.
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