Everything old is new again By trane in trane's Diary Mon Feb 20, 2012 at 01:29:34 AM EST Tags: politics, economics, debt doesn't matter, wall street, citigroup, citibank, john reed, occupy movement, we outnumber them (all tags)
	From Bill Moyers's recent interview with John Reed, former Chairman of Citigroup: BILL MOYERS: So do you have any sympathy for Occupy Wall Street, the movement that has in a very inchoate, but nonetheless, persistent way, been out across the country, trying to get us to pay attention?

JOHN REED: Yeah, no, I definitely do. I mean, I think it's symptomatic of the disconnect that exists in our discourse now. Where you have a set of folks who seem not to understand fully what went on and the implications of it. And a political establishment that doesn't seem to respond very well. They know a lot about the concerns, but they seem not to be able to do anything about them. And the folks in the financial system are not listening. They're not saying, you know what, there's some correctness in these views. And so I think these people are giving voice to a frustration. And I am quite understanding of it. I hope the political establishment has some ears. I understand the political divisions. But they've got to start understanding that at some point you have got to come together --- More on Reed (linked to from the end of the How to default, when talking about the short memories of markets: Over Christmas, Reed took his budgets and printouts to his Jamaican hideaway. Reed's visits there caused considerable consternation among his colleagues. To get to his home from the airport, he had to travel through one of the island's worst slums. After putting up much resistance, Reed finally accepted a security contingency plan that would take effect if civil strife erupted while he was in residence. --- How the 1% fear the many they are outnumbered by! In a democracy, we have the power of voting to change their exclusive grip over the money supply :) --- In late 1989, as Reed was stewing over his numbers in Jamaica, the real estate market took another blow. The ""Massachusetts miracle'' was going the way of the ""Brazilian miracle.'' Regulators stormed into the Bank of New England, which had gone hog wild making real estate loans. Days before Christmas, its aggressive chairman, Walter Connolly, was forced to resign, and the bank later posted a staggering $1.2 billion quarterly loss. --- Everything old is new again. The market never learns... ---  In the first quarter of 1990, the U.S. real estate market plunged. Nearly overnight, the impact of the 1986 tax changes and overbuilding, in part triggered by overlending by now-defunct thrift institutions, came home to roost. The Japanese, who had helped hype the market in the first place, now retreated en masse. --- Trump's way of dealing with debt: But by midyear 1990, Donald Trump was on the skids. Trump had started out as a good customer. But in the opinion of former Citibank officers, he, like other developers, got carried away. ""We did one deal too many with people who were okay,'' shrugged a former officer. With $2 billion in bank debt, Trump's lenders moved to restructure his empire, including his new Taj Mahal casino in Atlantic City, which had opened in April 1990 with great fanfare, but which quickly proved disappointing. Bankers had bought Trump's pitch that the ""magic'' of his name would enhance the value of his properties, so that they could dispense with the traditional credit analysis. The Donald, one banker told the Wall Street Journal, ""will have to trim the fat: get rid of the boat, the mansions, the helicopter.'' But Trump got over this hump by persuading the banks to extend a new loan to pay interest, enabling him to hold on to all his assets. --- But Citi and the banks did have a friend at the Fed. As the economy screeched to a halt, interest rates, with a push from the central bank, plummeted to their lowest levels in decades. And because the cost of money plunged faster than loan rates, bank loan spreads grew fatter. Why can't the Fed give money to ppl at 0.01% interest so they can buy T-bills at 3% interest and pocket the spread? Ppl are corps! --- Then, on June 12, 1991, Daily News gossip columnist Richard Johnson reported that Reed was having an affair with Cynthia McCarthy, a married stewardess on the Citicorp jet. [...] It didn't take long for Wall Street traders to start the humor mill turning. In one wisecrack that quickly made the rounds, the captain comes on the loudspeaker and says, ""Would the stewardess please return to an upright position before landing.'' Coffee tea or me? ---  In 1995, with the Latin debt and real estate crises behind him, Reed could concentrate on minding the store, expanding the global retail network, fine-tuning Citibank's operations and technology, selling telephone banking to customers, eliminating consumer transaction fees, and, with Citicorp stock trading at more than $60 a share, counting the paper gains on his stock options. --- Takeaway: debt doesn't matter.

Related Links

Bill Moyers's recent interview with John Reed More on Reed How to default trane's Diary