My Citi Was Gone

I have a lot of thoughts about the quasi-nationalization of Citigroup, because I am a Citibank shareholder. Some of those shares were acquired in the traditional capitalist manner; my husband placed an order through his online brokerage account. (We thought we were so smart, buying shares at $5 and change!) Some of the Citi exposure came through socialist means: IÁ¢€â„¢m a U.S. citizen, so Timothy Geithner doubled down on my stake.

What happened? Subprime mortgages and global financial collapse aside, Citigroup may have become too big to manage. It is definitely too big for another bank to take over; Chase was willing to take over Washington Mutual accounts, but it could not handle the account volume of Citi, too.

Citibank has long pushed the financial supermarket idea. By offering banking, brokerage, and insurance services under one umbrella, Citi hoped to make it easy for customers to deal with them. It also hoped to squeeze more profits out of each person who walked through the door. But it was always a tough sell. Savvy investors donÁ¢€â„¢t want any one institution to know everything about them; theyÁ¢€â„¢d rather play a few different companies off of each other. TheyÁ¢€â„¢ll shop around for an extra 0.50% on a CD, work with a few brokers to get the best stock ideas, and move their insurance business whenever they find a better premium.

Also, diversifying among several firms reduces the risk of problems Á¢€” from the Madoff risk at one extreme to the simple headache of limited access when something goes wrong. If you lose one credit card on an overseas trip and need to get home, itÁ¢€â„¢s nice to have another card with a different bank. If a teller is mean to you and you decide to move all of your business in a huff, itÁ¢€â„¢s easier if there isnÁ¢€â„¢t that much to move.

The underlying problem with the financial supermarket is management. How can anyone be on top of everything from how nice and knowledgeable the tellers are to the risk levels of complex derivatives trades? The President of the United States has an easier job, because the president isnÁ¢€â„¢t expected to post a profit. Also, he can print money and drop nuclear bombs to get things done. Vikram Pandit, the CEO of Citigroup, doesnÁ¢€â„¢t have those nifty tools. He couldnÁ¢€â„¢t even split the company up into more manageable pieces, because that would have taken away critical assets needed to prop up the banking business.

Now, the U.S. has a complicated relationship with socialism, and not just with Medicare and Social Security. The basic tenant of Marxism is collective ownership of the factors of production. Alaska is a socialist paradise, because the citizens own the oil; but IÁ¢€â„¢ll bet Sarah Palin would be offended if she reads that. (Not bloody likely! Unless the music folks add more Van Halen coverage.) Americans in Alaska and elsewhere have private pension and 401(k) plans, participate in company stock ownership programs, and take flyers on interesting investment ideas through their E*Trade accounts. Hence, most companies are ultimately owned by average American citizens. Marx would be thrilled.

Citi is still a for-profit, shareholder-owned corporation. The equity has not been wiped out; the government is just one of many shareholders. But the governmentÁ¢€â„¢s interests here arenÁ¢€â„¢t identical to mine. My familyÁ¢€â„¢s little Citi stake was acquired in the hopes of making a killing when the company returned to glory. The governmentÁ¢€â„¢s goal is to keep the bank from collapsing and taking the rest of us down with it. That would be a good thing for my family, I understand, but it might not lead to fat dividends that would pay for Catholic high school tuition.

Will the nationalization of Citigroup work? Whether looking at this as a private shareholder or an American taxpayer, I just donÁ¢€â„¢t know, and I donÁ¢€â„¢t think that anyone does. The government has a strong interest in a robust financial system. Capitalism only works if property rights are protected and contracts are enforced, and a key part of that is keeping the banks that hold money and process payments solvent. ThatÁ¢€â„¢s why the government has its own bank, the Federal Reserve Bank, to serve as a banker to the banks.

The nationÁ¢€â„¢s capitalists will have to accept some government intervention to keep capitalism functional. Vikram Pandit will have to deal with a new set of shareholders. And who knows? I might see my dreamed-of profits if the government bought its Citi stake at rock-bottom and sells those shares later.