Why I am Cynical

Workout notes: nothing yet; I hope to swim prior to going in to work; this is the last full day of teaching prior to Thanksgiving.

Humor and education

I’ve talked about the “Helicopter Parent” before; here are a couple of amusing episodes:

1. Graduate School Faculty Meet Helicopter Parents:

A Quick Tip for Applying to Grad School

It’s usually not a good idea to have one of your parents call the department on your behalf.

And if you have the kind of parent who does this without your asking, you have my condolences.

2. Division I (BCS) Football Coaches Meet Helicopter Parents:

More Humor Remember the battle over Proposition 8 in California: this was to take away the new “right” for gays to marry? Needless to say, churches (especially the Mormon (LDS) church was behind this.

I love this sign that was spotted at an anti-Proposition 8 rally:

Why I am cynical

You knew this was coming, right? We were warned

Citigroup was once the biggest U.S. bank. General Motors was once the biggest automaker in the world. Now, both are on the brink. Yet Citigroup is likely to be rescued within days. General Motors may not be rescued at all. [...]

Before the asset bubbles burst, financial institutions were generating whopping profits, so naturally they attracted many investors and creditors. After the burst, the profits disappeared. These days, you’d be hard pressed to find many people who want to invest in or lend to financial institutions. Citigroup had a market value of $274 billion at the end of 2006. Now its value is about $21 billion. That’s awful news for Citi, its executives and traders, and its investors and creditors. But it’s not necessarily awful news for the economy as a whole. [...]

In other words, Citigroup is not much different from General Motors. It’s a company that once made lots of money but, through a series of management blunders, is now losing money hand over fist. Just like the shareholders and creditors of GM, Citi’s shareholders and creditors are taking a beating.

So why save Citi and not GM? It’s not clear. In fact, there may be more reason to do the reverse. GM has a far greater impact on jobs and communities. Add parts suppliers and their employees, and the number of middle-class and blue-collar jobs dependent on GM is many multiples that of Citi. And the potential social costs of GM’s demise, or even major shrinkage, is much larger than Citi’s — including everything from unemployment insurance to lost tax revenues to families suddenly without health insurance to entire communities whose infrastructure and housing may become nearly worthless. I’m not arguing that GM should be bailed out; as I’ve noted elsewhere, GM’s creditors, shareholders, executives, and workers should have to make substantial sacrifices before taxpayers should be expected to sacrifice as well.

Nonetheless, Citi is about to be bailed out while GM is allowed to languish. That’s because Wall Street’s self-serving view of the unique role of financial institutions is mirrored in the two agencies that run the American economy — the Treasury and the Fed. Their job, as they see it, is to keep the financial economy “sound,” by which they mean keeping Wall Street’s own investors and creditors happy.

and now it has happened.

If you had any doubt at all about the primacy of Wall Street over Main Street; the utter lack of transparency behind the biggest government giveaway in history to financial executives, and their shareholders, directors, and creditors; and the intimate connections the lie between Administrations — both Republican and Democratic — and the heavyweights on Wall Street, your doubts should be laid to rest. Today it was decided the government will guarantee more than $300 billion of troubled mortgages and other assets of Citigroup under a federal plan to stabilize the lender after its stock fell 60 percent last week. The company will also will get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program.

This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached.