banking

Citigroup posted a $5.1-billion loss and announced 9000 layoffs.

Analysts call it a "kitchen sink quarter." Companies in shell-shocked industries write down everything that even looks like it might go wrong, clearing the balance sheet for future growth. For banking, that quarter was supposed to be the end of last year. Friday's earning report from Citibank, however, indicates that some in the industry might still have faulty plumbing yet to expose. After giant write-downs last quarter, Citibank again announced it needed to revalue its assets sharply downward. The financial giant took massive write-downs across multiple business lines, pushing revenue into negative territory and causing its second consecutive quarterly loss. The bank has now written down almost $40 billion due to the credit crunch.

European governments have begun a search for tax-evaders sheltering funds in Liechtenstein.

Since Germany revealed that it had bought, for $5 million, the names of 1400 tax evaders sheltering income in Liechtenstein, the hunt has been on for tax evaders on both sides of the Atlantic.  The thing has all the ingredients of a reasonably entertaining caper film.  A disgruntled ex-employee seeking to use confidential banking records as a bargaining chip against the government of Liechtenstein.  Secret databases passed from government to government.  Wealthy scofflaws scrambling for cover.
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On Sunday, Gordon Brown announced that his government would nationalize Northern Rock, a bank with a history of betting on risky mortgages.

Britain's "New" Labor is looking elderly these days.  The word "nationalization" has brought back echoes of the "old," quasi-socialist Labor movement, supposedly vanquished thoroughly and finally by Thatcher. 

But this is hardly a second red revolution.  A bank run forced the government's hand.  The government guaranteed Northern Rock's deposits to keep panicky depositors from pulling out and tipping the bank into insolvency.  Unable to find a buyer willing to assume the considerable downside risk, the government had little alternative to outright nationalization.  The government plans to operate the bank at arm's length.

This sticky situation may offer the best argument for American style deposit insurance.  Complaints that deposit insurance encourages both banks and depositors to behave irresponsibly are common.  But though these guarantees are expensive and economically distorting, they may be comparatively cheap if they insure against boondoggles like the Northern Rock fiasco.