What would have been a better way to handle Citi?
They should have been WaMued: put into receivership. The FDIC fires the board, and stockholders get wiped out. Bondholders get what’s left over, given their priority in the capital structure. The government could have said, “We’ll see how close we can come to making you whole,” but they probably would have been down 30, 40, maybe 50 percent. Then they could have spun out Smith Barney, a nice, profitable brokerage firm. The bank, Citibank, they could have spun that out as a stand-alone, with its $1 trillion in deposits. Pull out the toxic sludge. Another dozen entities within Citigroup either get spun off, if there are buyers, or just shut down. That’s what happens to bankrupt companies. They could have done the same with Bank of America (BAC). Spin out Merrill Lynch, sell off Countrywide as a mortgage broker, and the senior management and the board—they get jack. [See 6 confirmation questions for Ben Bernanke.] It’s conventional wisdom on Wall Street that the government made a mistake
