Tuesday, 30 March 2010

Bailout or Bonanza ?

Mr Vikram Pandit
Chief Executive officer
Citigroup Inc.
New York
United States of America

Dear Mr Pandit

You are probably used to receiving hate mail, but here’s a letter that you might be very pleased to read.

I read in the Wall Street Journal that the United States Government is planning to sell its 27% holding in Citigroup over the next few months. It is heartening to note that US tax payers are expected to make a profit of $ 7bn from their original “bailout” money that they gave to Citigroup. You have not only paid back the entire amount, but also let the taxpayer make a profit of $ 7 bn.

Yours was the last bank from which the government is completely recovering the money it lent under the Troubled Asset Relief Program, more popularly called as the bank bailout. The US government invested a total of $165bn in all the banks and in the end it has made a 14% return ; not bad considering that if the tax payer had invested in the S&P index at the same period he would have lost 3% by now.

This is of course only the banks – the government has lost money on the support it gave the auto companies like GM and Chrysler, insurance companies, like AIG and of course Freddie Mac and Fannie Mae. But then these are not banks. Public perception has been that the bailouts were some sort of a dole for bankers and aroused all the attendant anger against bank bonuses. The truth is that the bankers actually made a whopping profit for the tax payer , which the tax payer would not have otherwise earned. I would therefore suggest that the bankers be awarded extra bonuses !

Killjoys such as Simon Johnson, of the Massachusetts Institute of Technology have said that “it's baloney to say we've made money off the bank bailouts", because the banks actually survived only because of the government largesse to AIG who then paid back their dues to the banks. But that’s like saying that businesses make a profit only because government built the roads on which the companies can move their materials. The reality is that the “bailout” of the banks has gone incredibly well for the tax payer . Can you fail again please, so that we can once more bail you out and make these profits all over again ?? Only half joking.

I am well aware that you were summoned before the US Congress’s House Finance Committee in Feb 2009, when things were looking bleak, and you were railed at by pompous Congressmen. If they have any sense of fair play, they should be summoning you to the House again and showering you with praise. Of course, such magnanimous behaviour cannot be expected of elected representatives, so I suggest that you derive vicarious pleasure by cocking your nose, sticking your tongue out and saying “Boooo” to them while making a face.

I am also aware that while you achieved all this, you have taken home a salary of $1. The taxpayer has made money; the shareholders have made money, the customers have been protected and for all this, you are being rewarded an annual remuneration of $1. This is a crying shame. I propose that you be awarded a bonus of some $10m for outstanding achievement.

Yours sincerely

Just an ordinary Joe


zeno said...

I think, you should definitely send it to him. [Seriously]

Wish i could have invested when the stock was some where in 1dollar[around mar-2009]Today it is 4 dollars!

Does it also means, the salary/bonus that bankers recieve is justified?[cause at the end they make money]

BTW why $10m, why not a gulfstream jet as other $1 ceo;)

I very much liked the "Just an ordinary joe"

zeno said...

BTW shouldn't due credit be given even to GW.Bush ;)

Deepa said...

People are prompt enough to pelt stones at business houses for even one wrong step, but praises and acknowledging good work is a rare case.

Its one letter he would love to keep!

Anonymous said...

ordinary joe!!! ithelaam over adakkam. thts a wonderful mail..and vicky..wud be happy to read it. kandipa anupividunga :)

J said...

I am not sure I fully agree with the AIG and roads analogy since the banks were the primary beneficiaries unlike roads which has a broader use. Also, Mr. Pandit did make about $7 million this year from his Citi Stock holdings of over 2 million shares which increased in value because the government stepped in. But you make a valid point about recognizing the successes of all the various steps the government took and appreciating those who made it possible. But I am a dyed-in-the-wool killjoy when it comes to banks and their compensation packages so I am finding it really hard to share your sentiments. In fact I was having a hard time figuring out if you were being sarcastic in some places or meant everything you said :)

Ramesh said...

@zeno - Yeah - buying bank shares when they were really down would have been one of the smartest decisions ever made. But then that's the beauty of hindsight, isn't it ? Yes credit is certainly due, a little to Dubya and also to Obama, but mainly to Henk Paulson, Tim Geithner and Ben Bernanke. They truly rescued the world from a massive crisis.

@Deepa - Yes, it seems so much human nature to criticise quickly and praise rarely.

@gils - This shall just remain in the blogosphere and he will never read it of course. But I dare say, if he did, he may feel a little good.

@J - No, I wasn't being sarcastic. There's a lot that's wrong with that industry in my view and I still cannot reconcile to the bonus structure, or even how they make their profits. But in this piece , it would be churlish to have been vocal in that criticism. They have received so much of vitriol, but haven't received any praise at all for the way the bailout money was all returned. The average Joe Public still thinks his money was sunk into the banks, which is just not true. And yes Pandit made a gain from the shares he had held, but that was from the past. For the work done over the last 2 years, which surely must be one of the most difficult and killing jobs in the corporate world - he received $1, which the public bayed for. That is the worst sort of Maoism and Marxism imaginable.

Sandhya Sriram said...

Mr. K Ramesh
Chief Editor

Dear Mr. Ramesh

I awaken today with another amazing perspective on a mundane business topic

Yours is the best combination of synthilating variety of business topics, path breaking views (little opinionated but always for the right reasons), captivating writing style and amazing clarity.

I am well aware of your greatness as a person since i know you otherwise as well but every follower of your blog even if they know you only in the blog world realises the same with the same intensity (ref: comment from GILS above)

I am also aware that while you achieved all this, you have kept a very low profile and your humble self has always gone overboard trying to motivate and encourage far more mediocre attempts from co-bloggers like self and I propose that you be unanimously awarded a crown "The Emperor of Blogoworld"

Your Sincerely

Acutually an Ordinary Joe

Deepa said...

@Sandhya- take a bow! A special one for "actually an Ordinary Joe"! Add me in that club please! :)

ambulisamma said...

A good mail which vicky would have never expected,but you see he will read this in blogosphere is high expectation.And Sandhya's comment is a real good one.

Ramesh said...

@Sandhya - awww. How many times have I come home after a hard day and then read your comment to get a high immediately and walk around with a smile on th face. You are far far too kind Sandhya. I am totally flattered, and completely bowled over. Thanks for making so many of my days.

@Deepa - Indeed; Sandhya take many bows

@ambulisamma - Of course, no chance he would ever read it. That's why its safe to put out !!

Vishal said...

Very true Sir - How many times have I come home after a hard day and then read your post to get a high immediately and walk around with an encouraging thought on the face. You are truly exceptional!

Just that sometimes, I fail to keep pace with your thinking and writing speeds. :-) Hope to catch up some day ;-)

@ Sandhya - Wow, you are not an ordinary Joe. Your presence make this space even more vivacious.

Ramesh said...

@Vishal - Thanks Vishal; very kind of you. Oh yes, we know Sandhya is very very special. And she's no Joe; she's Jane :)

Half Indian said...

Well done, Ramesh Ji!

Ramesh said...

@Dave's mama - xie xie ni

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