I just don't get it

Okay, I give up! Everyday I awake thinking perhaps THIS is the day I understand what the US Treasury Department is going to do about the banks. Everyday I feel a little more puzzled. This week I was let off the hook. Paul Krugman who last year won the Nobel Prize for economics stated, "I keep not being able to understand either what the plans are, or why they're supposed to work. And I don't think it's me."

I admit it there is something very comforting about being as clueless as a Nobel Prize winner.

The term "nationalization" keeps being thrown around in such a way that I'm not sure anyone agrees on the definition. The taxpayer has put $45 Billion into Citicorp in return for $52 Billion in preferred convertible stock. If converted, the taxpayer would suddenly own over 80% of Citi, but according to Bernanke, that isn't nationalization. The government has put in $45 Billion in cash and $300 Billion in guarantees into Citi, a company with a market capitalization of $12 Billion. The President said nothing being done about the banks is FOR the banks. Well it sure feels like it.

As convincing an orator as President Obama is, his treasury secretary seems to be dancing to different puppeteers. Citicorp stock is no longer a stock at all, it is an option on Secretary Geithner. It is the market price of the belief that Citicorp will not be allowed to fail.

The words that keep running through MY mind are, "if it is too big to fail, it is too big to exist." Maybe behind all the blithering is an ongoing process of unwinding the bank in an orderly fashion and we'll all breathe a sigh of relief that they are smarter than they sound. The "Geithner Put" is a dangerous concept as it draws investors into the comfort that eventually this will work out. With Citi Preferred shares paying over a 20% dividend currently it is tempting to believe the line that nationalization is not happening. But a voice in my head keeps saying, "but it should."

This is like rearranging the Titanic's deck chairs while assuring the passengers the iceberg is melting. When Paul figures it out, I hope he'll call.