The Current Citibank Status - Essay Example

Running Head: THE CURRENT CITIBANK STATUS AND THE ECONOMY FOR COMMERCIAL LOANS The current Citibank status and the effect on consumers and the economy for commercial mortgage and loans [Name] [University] Abstract Zero percent APR. Roll over, sleep better (referring to 401k plan). Earn more money in less time with a Citibank 12-month CD. Citi expands Homeowner Assistance Programinnovative initiative lowers mortgage payment to below-average cost of monthly rental while unemployed homeowners regain their footing. Headlines found on the Citibank main web site in the midst of a global economic crises (and with a $45 billion government bailout in its own coffers), seem bold, except for the lower mortgage payments on home loans. In the meantime, who's got savings It would appear that Citi has boycotted the recession while it works on getting those who still have jobs to save more. Is it prepared for more downturns as the economy spirals downward Hugh of St. Victor (1096-1141): "The pursuit of commerce reconciles nations, calms wars, strengthens peace, and commutes the private good of individuals into the common benefit of all." Supply and demand, consumer behavior, decision-making, firm behavior, and market structure-these are the underlying schema in microeconomics as the overall economy appears to be on a roller coaster ride. One day the Dow Jones is up, the next day it plunges down. Those who are holding out for economic stability seem to be optimistic that the highly controversial and recent national cash infusion of $3.5 trillion approved by Congress is going to put at least a mild set of spare brakes on the ride. Its primary purpose is to move working people in to more updated and viable industries based on changes in today's world; and hopefully, to get them spending and borrowing again. The government is also underwriting the virtual flotation devices for lending money to cash-strapped small businesses until a stalled economy can get moving. The only remaining question is in whether or not the average consumer is going to risk borrowing (or spending freely) in order to restart the flow once a checked economy makes its next move. Overall, consumer confidence levels depend on who is asking and what time of day it is. What was "up slightly" on March 31 became a "multi-year low" on April 1. The high road seems to be a willingness to take the middle ground approach and state that consumer confidence is "relatively pessimistic," according to Scott Andron of the Miami Herald.[1] Most important in the consideration are the investors, national and global individuals and smaller corporate conglomerates who put up the money that underwrites the tangible assets so that loans can be withdrawn and used to sustain the economy. Without them, no one wins. U.S. officials have pressed their European counterparts to spend substantially more public money in an attempt to revive economic growth and global trade. Some countries, led by Germany, have strongly resisted, predicting that such a path could lead to unsustainable debts and runaway inflation. Luxembourg's prime minister, Jean-Claude Juncker, who heads a coordinating body of countries that use the euro currency, said European countries had already spent enough to jumpstart their economies. "The European stimulus plans are muscular, they are demanding, they are important in volume and in quality," Juncker said Wednesday in an interview with France's Europe 1 Radio. He said there was "no question" that the European Union would reject requests from Obama to spend more.[2] As recently as March of 2009, Citibank began to predict its own demise.[3] Michael Shedlock, a registered Investment Adviser for SitkaPacific stated [paraphrased] "Citigroup is essentially telling investors to bet against thema whole slew of financial stocks have been smashed to smithereens."[4] It is hard news to bear for a company that was once considered eternally solvent, particularly with all of the assets (and debts) that it acquired in a relatively short period of time. For a moment, it seemed that Citi cornered the market on financial services and products. Making some incalculable assumptions, Citi had more than $130bn in what is called 'Level 3 assets' in 2008.[5] They were ultimately criticized for growing too fast and out of control in their eagerness to gobble a bigger pie piece, or market share, in the industry. Commercial real estate lenders in 2009 are facing the bleakest lending market since the early 1990s, according to industry experts. It's one more facet of the ongoing recession. Moreover, no glimmer of improvement is seen on the horizon until late 2009 at the earliest--and more likely 2010, most say The report continues, "Values will drop substantially, foreclosures and delinquency rates will increase sharply and a limping economy likely will crimp property cash flow. The aftershocks of rampant over-the-top lending that batter the entire credit system leave property markets substantially overleveraged and vulnerable to significant depreciation." The current effect on job viability and homeowner lending; loan capital for small businesses, including real estate leasing and purchasing; and on reinvesting in an economy that produces more jobs in other sectors and industries is all part of the cycle. During a turned down economy, lenders and loan brokers are unwilling to take on additional financial risk, particularly that which is startup capital for brand new businesses. However, it does appear that commercial lending pertaining to capitalizing equipment purchase and leasing and for providing lines of credit (cash infusions) for businesses is a small exception to the lending rule, at least for the time being. PayNet, which tracks trends in the commercial lending market, told Reuters on Thursday that banks originated 51 percent of all equipment financings in 2008, up from 43 percent in 2007. The banks accomplished that feat by effectively retreating from the market more slowly than their competitors. Capital equipment loan, lease and line of credit originations tumbled 24 percent in 2008 pulled down by a 44 percent decline in originations by independent lenders and a 28 percent decline in originations by captive finance companies...President Bill Phelan told Reuters, "This review shows that banks are now the primary providers of commercial credit to small and medium-sized U.S. businesses." That is why the captives and independents pushed the Obama administration and the U.S. Federal Reserve to expand the so- called Term Asset Backed Securities Loan Facility, or TALF for short, to include commercial loans such as equipment leases and lines of credit. In analyzing these matters as to the current economic crises and for the future, there are several factors to bear in mind. There will always be an economic tug of war (pull/pull) and push/pull and 'doomsday naysayers' on either side of the fence who are always ready to present their ideas about why they think we've fallen and what it's going to take to arise again. But this, too, is cyclical rhetoric that we've all heard before. If there is any logic to be had in the theory of "tax and spend," it is an opposite but equal logic to not taxing and not spending. It means nobody moves. If nobody moves, jumpstarting progress is out of the question. While that may be okay for those who already "have it," it pushes those who do not off the wheelbarrow. Government may not be able to provide the 'be-all end-all' answers to economic growth, but survival of the fittest is an equally raw deal. That idea is the microeconomic equivalent of bootstrapping by those who can't afford the boots; or trying to force those who can't purchase clay to make bricks. Economic slavery at its finest. If we have learned anything in this economy, it is that recessions and depressions don't happen in a vacuum. They are very much capitalistically orchestrated and have become almost highly predictable except for these two variables: The fickle and changeable micro-purchaser who almost always buys at retail and sells most of their gently-used items at a simplistically depreciable loss; and the micro-borrower who often spins a cycle of personal debt that affects the greater good of all. The current public debate is over finding policies and strategies to achieve a prosperous and fair economy. In the mortgage and capital lending and financing markets, it's going to be difficult to pull off a home buying surge or an influx of people wanting to borrow money to start new businesses or leverage and capitalize on older businesses if current incomes are not properly meeting living expenses. Personal credit doesn't have to be used for business purposes, but personal credit determines whether or not business credit will be approved.[6] That said, the 'bad news/good news' is that foreclosed properties have provided a "boom" of sorts for first-time home buyers, as the current buyer's market has created lower-than-normal prices and lower-than-usual interest rates. On the small business lending end, President Obama moved to aid small businesses by buying up $15 billion in securities and said that the action will encourage lenders to make more money available to entrepreneurs and spur renewed economic growth in a vital sector of the economy. Small business employs close to 70-percent of the nation's workers in the private sector and continuously creates new jobs. "Today, too many entrepreneurs can't access the capital to start, operate, or grow their business," Mr. Obama said. "Too many dreams are being deferred or denied by a form letter canceling a line of credit."[7] Though the GOP argues, logically enough, that government is not "the" answer to the nation's economic woes, government also cannot afford to stand idly by and hope that the good will and financial savvy of the societal "greater-thans" helps the problem to resolve itself. Relying on fate, ingenuity and consumer industry has not brought the necessary shared prosperity that is supposed to grease and restart America's stalled engines and help get the global economy back on track. References [1]Andron, Scott, Economy. Florida Consumer Confidence Relatively Pessimistic. (2009). Miamiherald.com. Retrieved April 2, 2009 from http://www.miamiherald.com/news/southflorida/story/977993.html [2]Whitlock, Craig, Washington Post Foreign Service. EU President blasts U.S. Spending. (2009). Washingtonpost.com. Retrieved April 2, 2009 from http://www.washingtonpost.com/wp-dyn/content/article/2009/03/25/AR2009032502074.html [3]Kearns, Jeff. Citigroup says "Buy Bank Puts" because Rally will fade. (2009). Bloomberg.com. Retrieved April 2, 2009 from http://www.bloomberg.com/apps/newspid=20601087&sid=a2dV4cMcTXEU [4]Turk, James. Will Citibank survive (2008). Marketoracle.co.uk. Retrieved April 2, 2009 from http://www.marketoracle.co.uk/Article4088.html [5]Spence, John. Citigroup reports $134.8 billion in 'level three' assets. (2007). Marketwatch.com. Retrieved April 2, 2009 from http://www.marketwatch.com/news/story/citigroup-reports-1348-billion-level/story.aspxguid={C06333CB-C985-4B41-A7B2-1699184BBA4E} [6]D&B Small Business Solutions. How does your personal credit affect business loan prospects (1999-2009). Allbusiness.com. Retrieved April 2, 2009 from http://www.allbusiness.com/personal-finance/credit-cards-credit-profile/901-1.html [7]Cooper, Helene. Obama Acts to Aid Small Businesses. (2009). NYTimes.com. Retrieved April 2, 2009 from http://www.nytimes.com/2009/03/17/business/smallbusiness/17sbiz.htmlex=1254283200&en=c691f8a2f1d11d7e&ei=5087&WT.mc_id=BU-D-I-NYT-MOD-MOD-M091-ROS-0409-HDR&WT.mc_ev=click Read More