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Citigroup: A Case of British Financial Warfare

Nov. 24, 2008 (EIRNS)—This release was issued today by the Lyndon LaRouche Political Action Committee (LPAC).

Late last night, the Federal government moved to bail out Citigroup, agreeing to give the bank a $20 billion capital injection, and guarantee $306 billion of securities, loans and commitments backed by residential and commercial real estate and other assets. Citigroup will take the first $29 billion in losses on the guaranteed assets, and take 10% of the subsequent losses, with the government taking the remaining 90%. In addition, the Federal Reserve will "backstop residual risk" through a non-recourse loan.

There is no question that Citigroup badly needs the money, but so do all its peers. The more interesting aspect of the case is that Citigroup, as the flagship American bank internationally, has been targetted by the British, who wish to eliminate it as a rival.

The essential facts are these:

  • All of the big international banks are hopelessly bankrupt, holding hundreds of trillions of dollars of worthless assets and quadrillions of dollars of uncollectible derivatives bets. The illusion of solvency in these banks is nothing but an accounting trick. Citigroup is no more bankrupt than J.P. Morgan Chase, Bank of America, HSBC or the Royal Bank of Scotland. Thus the singling out of one bank, as has happened to Citigroup, is political targetting.

  • Citigroup is the flagship American bank internationally, active in more nations than any other bank in the world. It has operations in 106 nations, compared to 85 for HSBC, the flagship British Empire bank. Citigroup's chief rival in the United States, JP Morgan Chase, has been a British bank from its inception (J.P. Morgan & Co. started as the U.S. arm of a London bank, J.S. Morgan). Anything which weakens Citigroup, improves the British position.

  • The bailout of Citigroup was triggered by a 50% drop in the value of its stock last week, as a result of an assault on its stock orchestrated by the Brits. This assault began a year ago, with the release of a report by Canadian Imperial Bank of Commerce analyst Meredith Whitney, which said that Citigroup faced billions of dollars of losses and should be broken up into pieces. This report was played up in a big way by Rupert Murdoch'sWall Street Journal, providing the cover for the initial British assault on Citigroup. Then HSBC put pressure on Citigroup by taking $45 billion of its own SIV assets back onto its balance sheet, highlighting Citigroup's own substantial SIV vulnerabilities. The pressure led to the resignation of Citigroup CEO Charles Prince. The most recent move was the attempt by the Plunge Protection Team to save Citigroup by arranging for Citigroup to buy the deposit base and selected assets of Wachovia; an agreement was reached, but then Wells Fargo swooped in to buy Wachovia. The result was renewed speculation in theUrinaland other places that Citigroup would not survive. This is a classic British operation.

The final point which must be made is that this bailout of Citigroup will not work, nor will the bailout process in general, for reasons we have repeatedly stated. The only way to save Citigroup would be to put it, and the rest of the system, through bankruptcy, writing off its bad assets and reconstituting it as a highly regulated institution engaging in traditional banking activities—no more derivatives or other speculation. Anything else, is a waste of time and money.