When Government Funds Business

Nyt citi
The Gotham Gal opened the NY Times this morning and she says to me "didn't we just put money into Citibank?". The we being all of us taxpayers here in the US.

I said, "yes, a couple times I think". And then she got upset. Because there at the bottom of the NY Times is a big advertisement for Citibank (see the photo on the right).

She went on. "We are paying for that ad. In a newspaper that less and less people read every day. No wonder they are in trouble".

There's something poetic, ironic, and iconic about that ad at the bottom of the NY Times today. It sums up so much of what we are all seeing and feeling these days.

Old school companies sticking to old school approaches that don't work anymore. All the while new companies with new approaches are succeeding and even thriving. Welcome to the macropocalypse.

But there's a bigger issue here. Bob Lefsetz talked about it in his post last night about Sheryl Crow and Maureen Dowd.

Northern Trust, a bank, took our money and then flew their peeps out to
Southern California for a golf tournament, where they wined and dined
them, even closed the House Of Blues so they could showcase Sheryl
Crow.  Only problem, we, the public, paid for this show!  What’s a
bigger crime, scalping tickets to shows people want to see, after all,
that’s supply and demand, or major corporations filching money from us
in great quantities?  Obviously, the latter.  But now it’s become a
sexy issue.  Because they’re truly doing it on our dime.

When our government starts spending our money backstopping companies, then we start paying more attention to how those companies are spending our money. And we don't like it. It is going to get worse.

We are involved with a non-profit group here in NYC that is doing some very important work around parks and public spaces. In the past they had funding from companies like UBS and JP Morgan Chase. They can't tap that money anymore because those companies don't want to be doing anything "inappropriate" with public funds (as if supporting parks was inappropriate). And since all money is fungible, all of these companies' funds are public funds now.

Being the CEO of a company who has taken government money is like having a big target on your back. Everything you do is going to be second guessed, debated and discussed like never before. "Now it's become sexy because they are doing it on our dime" Well said Bob.

This whole situation sucks. When government funds business, it messes everything up.


Comments (Archived):

  1. Ben Parr

    The market’s designed to weed out losers, take out inefficient sections and businesses, and replace them with new ones.That’s the path we should have taken. At the least, let them massively restructure.

    1. JLM

      When the “do overs” begin to march in and ask for even MORE money, then this is exactly what should and will happen. Those who have college students understand this concept. When they graduate, they graduate.

  2. dgulbran

    When government funds business, it messes everything up.Which is why many of these business should have been allowed to fail. I know, I know, that would wreak havoc on the economy. Which, of course, is doing gangbusters with all of the bailouts, right?Allowing poorly run business to fail weeds out the losers. Forcing investors to take the loses for their unjustifiable risks causes people to be more diligent in their future dealings. All this bail out BS is perpetuating bad business all around.

    1. JLM

      Not allowing a bit of Darwin’s influence also penalizes those companies — Toyota — who managed to compete and win even in areas which were owned by the American car companies (e.g. pickup trucks).This is unfair as these vehicles (Tundra) are also being made in America by Americans (San Antone, TX).Bankruptcy is a fair tool to resolve these issues and GM, et al, should be forced into bankruptcy to be able to shed contractual relationships which encumber their ability to compete without penalizing companies who are lean and mean.I truly wonder if the solution to the American car dilemma might not be to use the money going to the Big Three to just buy Toyota? It might be a cheaper way to have a successful American car company, no?

      1. Noah David Simon

        lol… excellent point.

  3. mfeinstein

    I agree with dgulbran. I didn’t originally, but seeing how the bailouts are playing out, I think we should have been much more surgical. And, we should have avoided becoming an equity investor. Guaranteeing loans is a lot better than being a shareholder.

  4. Peter Fleckenstein

    Fantastic post Fred.I’m wondering how quickly LPs would stop the capital calls or even pull their money completely out of VCs had they followed a similar course of action that the government has taken. What about how quickly they would have filed lawsuits or taken criminal action against the Partners of a firm?It seems that the government is currently stuck in a never ending groundhog day mentality. Mix in a little bit of Alice in Wonderland complete with the Mad Hatter and the Cheshire Cat and you get a pretty accurate picture of the State of the Union.(I’m betting over a hundred comments on your post) 😉

  5. vvurdsmyth

    Perhaps gov’ participation in biz & industry screws US up. Citi, like all biz that want’s to succeed, has to advertise, and to me, no where more appropriate THAN the NYT. If everyone took the same polemic position as Gothom Gal, there would be no more NYT. Perhaps Gotham Gall needs to take some happy pills, cause I read the NYT… Twitter up… the Grey Lady is still kicking butt…

    1. fredwilson

      She reads the time in paper form too (I don’t) and is a loyal consumerBut have you checked out the rates that the times gets for their front page?

  6. Harry DeMott

    Good comments all. There’s a big difference between the government coming in to support Citibank the stock – and the government coming in to support Citibank the counterparty on a lot of bad loans and esoteric derivative contracts. The former makes no sense, that’s what the free market is all about and why we have a very advanced bankruptcy code – and the latter is the true purpose of the bailout. The shareholders need – but don’t deserve a bailout – nor do any of the other capital providers up and down the structure, but the bankruptcy of Lehman shows that the system needs a bailout to remain solvent. So when these companies take public money – it is really to promote system wide solvency – not to prop up the equity – unfortunately, the government never really made that distinction and as Fred points out, money is fungible, so JP Morgan, which didn’t need the $25B foisted upon it, is now unable to help the parks it so generously supported in the past for fear of people taking shots at how it decides to run its business. If Citibank wants to spend its money on the front page of the Times – so be it – it is still a public company with a very large shareholder who does not control the board or make management decisions. Gotham Gal should sell here C stock if she has any. In my opinion, anyone crazy enough to take out a front page ad in the NYT at this point in time should have their stock sold – simply because they just don’t understand that marketing of this type is largely a waste of shareholder $ – thus deserving the sell order. Hopefully, one of these days the government will get it – and decide once and for all whether it wants to save the system or own the banks. If it wants to own the banks – then they can inject capital just like any other vulture investor and take over the company – and run it as they see fit. If they want to save the system – then they need to say that money is not fungible in this case – and that the $ given have to be used in very specific ways – such as to relend out into the system – or to buy down exposures to the toxic assets – not just shore up Tier I capital positions.

    1. fredwilson

      Such a great comment HarryIt really sums it up very well

    2. Brian

      A great comment related to companies forced to take money from TARP comes from Tyler Cowen: “I don’t know if this will work, but it is a neat trick. Imagine that you, as a smart person, went around saying stupid things, in an attempt to limit discrimination against the stupid” http://bit.ly/YECsd

  7. Chris

    Wonderful post.Unfortunately, many people have been swayed to believe that government should fund business A, or business B, or certain industries.Even more unfortunate is that many *businesses* find that this is a convenient path to riches.What’s easier? Creating products and services that people will *voluntarily* pay for, or get the government to *force* people via taxation to pay for it?With the latter, you can forget about satisfying customers and instead focus on lobbying politicians.Whether it’s funding bankrupt companies, companies “too big to fail”, or even so-called “green” companies….taxpayer funding leads to economic failure.

  8. Rian

    Better they spend it than hoarding it to shore up their balance sheets, no? And relative to the bailout billions, this is like the conservative caterwauling over 1-2% pork in a multi-trillion dollar budget. If you’re pro-stimulus, which I suspect you are, just think of it as a small fraction of the TARP program going toward direct economic stimulus. ;)[ In general, though, I agree with your sentiments, and I have a problem with luxury spending a la Northen Trust. ]

  9. CarlosPero

    As a Citibank customer, I don’t expect them to dry up their advertising/marketing funds. They still need to do some “business as usual”, don’t they? To some extent their business model depends on it as one of the levers to pull.

    1. fredwilson

      Of course they do, but ads on the front page of the NYT are hugely expensiveand do nothing to drive transactions with new or existing customersIt’s all brand building and expensive brand building to boot

      1. anthonybrown

        One could argue Citi and others are going to need a lot of brand-building once this is all said and done :)And who knows, $NYT might need a bailout as well, then it won’t be that big of an issue.

        1. markslater

          brand building? i would say brand creation.And if we prop up the NYT, then we all may as well pack up our tools and hitch a boat ride back to that from whence our ancestors came.

  10. Kenosha_Kid

    I wonder if the old school vs. new school analogy is actually more of an observation that some of the old school companies had become too comfortable and as a result sloppy. However, I don’t think this is a question of oldness vs. modernity, as much as one of substance and innovation vs. lack thereof. The old school companies became blue chip for a reason, while there are plenty of modern enterprises that are lacking in real substance and will probably disappear. The issue of substance vs. fluff (rather than old vs. new) is, I think, the real root of our problems… in fact a lack of substance is what defines a bubble. Maybe this relates to the government funding issue in that the availability of this form of capital does not push the fluff to fill up with substance or otherwise pop.

    1. fredwilson

      Great point. You can teach an old dog new tricks and not every new dog willhunt

  11. dcostolo

    Actually, it’s even worse than you think. Northern Trust made over $640 Million last year in earnings. They are not in *any* trouble because they steered clear of sub-prime. As I understand it, the main reason they took 1.6B (i think that’s the number) in TARP funds is that the Paulson treasury Dept. wanted all the major banks participating in the program. So, a company that’s making money, that wants to fund marketing out of normal OpEx, is now not allowed to do that because they took taxpayer money that we insisted that they take. Of course, NT is now just paying back the 1.6 to the government instead of using it for consumer loans, since who needs Congress breathing down your neck about everything you do. So, most importantly, a good bank, one of the few that could have quickly put the money to work the way it was intended, is instead now saying “hey, no thanks, you can have your money back”. I guarantee you that Barney Frank, TMZ who “broke the story”, and Maureen Dowd will all hail themselves for “getting your money back”.

    1. fredwilson

      Situation normal, all fucked up

  12. Adrian Ionel

    True, but what’s the alternative for Citi or AIG?

    1. JLM

      In the S & L crisis, the government forced shot gun marriages between large financial institutions — primarily regional institutions because the Glass-Stegall Act effectively forbade nationwide branch banking. That ship has sailed.JPMorgan/Bank of America <<< Bank of America, JP Morgan, N Carolina National Bank, NCNB Bank, NCNB Bank of Texas, Interfirst, Republic Bank, First Republic Bank, First Dallas, Republic Bank —- hell, I should have invested in a sign company in those days!The Feds will have to dust off a few files but they know exactly how to do it.First they will create the “bad banks” and aggregate the toxic assets and then they will begin to forcibly merge the “good banks” to create huge merger efficiencies. How difficult wil that be when they own a huge chunk of the bad ones and they can muscle around the good ones?Can’t happen too soon! We will ultimately have 2-3 national banking franchises like England.

      1. Adrian Ionel

        Still, the Feds (us) end up holding the bag. And are just a few big banks a good outcome (again too big to fail)? Wouldn’t a more diversified financial system be more resilient and adaptive – if intelligently regulated?

        1. JLM

          We not only END up holding the bag, we STARTED holding the bag from the very beginning. The FDIC insurance underwriter, at the end of the day, is us and always has been. Remember that the S & L crisis was created in great measure by Rep Henry B Gonzales and his ilk increasing the FDIC insurance from $20K to $100K — and now it’s $250K per account.I think there will always be the contrarian who after the wholesale consolidation of the “big good” banks will see the market niche for a sound local bank — after all this is where banking originated. And there will be a generous supply of unemployed bankers. Can they get the capital and what will the Comproller require in capital to form a bank. It has been 6% until recently.The issue of “intelligent regulation” is really at the crux of this whole mess including the FDIC account limits.Can you imagine what would have happened if the gov’t has intervened at the second meeting of the 20 something IBs with mousse in their hair and said: “If you can’t recover the collateral, you boys can’t sell it.” No credit default swaps, etc. Very different CDO structures.How about if they had said to the big IBs and GSEs — “…you can’t leverage your balance sheets 40:1, fellas, so stop that nonsense.”How about if they had banned naked short selling, kept the uptick rule in place and temporarily forbade short selling in general?There is a huge role for intelligent regulation. Can it actually be achieved? I suspect that the pendulum will swing too far in the opposite direction but that is the nature of a reactive environment.In assessing the quality of regulation, turn an eye toward how massive the frauds perpetrated by Madoff and Stanford were allowed to grow until detected. Would they ever have been detected absent the implosion? I think not. If you can’t catch the out and out cheats, then your ability to guard rail the industry is a bit suspect.

  13. Morgan Warstler

    Fred, you sound like Rush:”Northern Trust, a bank in Chicago — by the way, which holds the mortgage to the Messiah’s house, purchased by Tony Rezko, Northern Trust holds the mortgage. Northern Trust was forced, like Wells Fargo was forced, to take TARP money. The Wells Fargo CEO said they were taken into Paulson’s room and they were given until 5:00 to sign it. They weren’t getting out until they did. They wanted it spread all over the banking business. Northern Trust was in there. They didn’t want it. They took $1.6 billion. As you know, they went out and they sponsored the LA Riveria Open two weeks ago that Phil Mickelson barely hung on and won. [Applause]And we find out they hired some liberals to entertain, but it still wasn’t good enough. They hired Sheryl Crow. And they hired the rock crooner group Chicago, but they had the audacity, Northern Trust did, to entertain their clients, to try to reward their best customers, to get new customers, banking is in trouble, Northern Trust is trying to do what they always do, what all businesses do, and that is mine for new clients and reward existing good customers. Not since they took $1.6 billion, I guess. The haughty John Kerry wrote a piece of legislation said: He’s getting sick and tired, sick and tired of these CEOs using taxpayer money to throw all these lavish parties. And I’m saying where do you get yours, Senator?”http://bit.ly/z4GDh

    1. andrej

      Edit: this should have been a reply to the blog post.You make it sound like it’s a one way road, but that’s not the case. It’s a spiral, and you can’t say where it starts and where it ends.Our money goes into citybank, but our money comes from our jobs, which may i fact just have been saved by money from the government, which is money also pad by companies. And the money spend by citybank, is also money received by other companies, paying salaris of other people, etc, etc, etc.Do you really know who pays who?

    2. fredwilson

      Well that’s upsetting

  14. Darren Vengroff

    In the case of Citibank, GM, et. al., the government is really acting as an investor of last resort, putting money into extremely risky ventures that need to be turned around quickly. There are private investors who specialize in this sort of investment, and inevitably the first thing they do after putting in money is fire top management and bring in competent people with new ideas. Why shouldn’t bailout funds, which are the ultimate distressed asset investment do the same?More on this and how it relates to both the bailout and VCs at http://www.techflash.com/ve

  15. jonathan glick

    Nice reference to Umair, Fred.I wish we could get *him* on these idiotic Sunday shows. Maybe we need a “Draft Umair as pundit” movement? He’d hate it, of course, but I want to see him debate Krugman AND Will.

  16. maverickny

    On seeing the Citibank ad, I choked over my coffee this morning too and can quite see why Gotham Gal was upset. The trouble is, once we doll out handouts to businesses or people we have little say in what they do with it, even if it offends our sensibilities, just as GM do when they go back cap in hand for more.Government funding businesses and banks is a wee bit too socialist for me; doomed, no doubt, to inevitable failure. Was it Thatcher who said something like, “To cure the British disease with socialism was like trying to cure leukemia with leeches”? I hope America learns from history and doesn’t go down the same route as Callaghan’s Britain and the miserable winter of discontent.

    1. Noah David Simon

      we don’t have inflation problems yet. we are worth our money. we need to convince ourselves that we are valuable. it isn’t war that is a problem, but how you fight it. to fight you need confidence. the mechanics of control is no different then any other struggle. centralized force is always unnerving, but at times necessary. The buyout isn’t that different then invading Iraq. If we say it won’t work. It won’t. like usual we don’t have a blue print and no one is designing breaks for this machine.

  17. gregory

    Great point. Maybe it’s Citi’s way of saying thank you to the NYT for supporting government help:”This page has consistently held that the government must intervene in markets when failure to do so would cause even greater economic harm. The impending collapse of Citi or an unrelenting credit freeze demand intervention.”http://www.nytimes.com/2008…What if we didn’t intervene in Citi as the NYT suggested but rather put the same amount of money to funding new banks. Would they have spent their marketing dollars like this?

  18. Blake

    This brings up a question that I’ve had on my mind for some time. If there are so many people that fundamentally disagree with the governments (Obama’s) approach to bailing out businesses, why are there so many people that support him? I realize you don’t have to agree with everything a person stands for in order to support him/her (lesser of two evils), but this strategy is akin to following a general off the cliff.Isn’t it about time we step back and examine if the Obama administrations actions are making things worse, and if so we stand up and demand improvement and accountability? I see a common thread where folks disagree with the government’s actions, but end their thought with “… but I still love Obama.”It may be politically incorrect to say, but the Obama camp is running us into the ground at an unprecedented rate. It has to stop.

    1. JLM

      Great point!Face it, POTUS has become a rock star. And the general public likes rock stars. He didn’t win the election because of his policies, he won because of a perfect storm of rock stardom v Bush and v a tired old guy who was hated by the camera.And because the rock star knew how to organize, work the net and to enlist the technology as an ally in itself — not just in the message. If your opponent is dark on the technology page, then just being “up” wins the day. And, Obama was “up”. And, he raised ooodles of $$$$$$$$$$. Long ball with bases loaded. If you were reviewing two deals which one would you have backed. Not even close. Perfect storm! Masterful campaign.And, yet, if 10% of America changes its mind its game, set, match — no BO. Just 10%.I disagree w/ almost all of his policy stances — some absolutely and some just a bit — but the guy is cool. He has a certain style. He’s a fabulous communicator though I am really getting tired of the back and forth teleprompter head. He’s smart as a whip and he has harnessed class warfare (top 2% and the lobbyists) like a Percheron.He has gone “all in” on all of his campaign promises. He is, in fact, the liberal leader that he was accused of being and he is unapologetic. He is using the fear of the crisis to justify each and every one of his programs at a time that his strength in the Congress is at its high water mark and the opposition is castrated. He has to move now if he really wants to succeed.The big problem — he is probably not right on the TARP, the Stimulus, the HASP and the cost of the budget. Politically, he has played the point perfectly. Economically, we are screwed. I just hope he does not kill the institutional memory of what has made us a great country — individual freedoms, free markets, entrepreneurial zeal and reward.Make no mistake, President Obama will get EVERYTHING he wants in the next 12-14 months. Everything! You don’t think that the general public is reading the fine print if the Congress is voting on $1T bills without reading them, do you?

      1. Adrian Ionel

        Agreed on why Obama won and his current playbook. Also agreed the spending free he plans to unleash is unhealthy. But why do you think the stimulus is the wrong thing to do? Would the economy be better off with a hard jolt of creative destruction and would it stabilize fast enough on its own?

        1. JLM

          I am in favor of “a” stimilus. I don’t think “this” stimulus will work very well. It will come up woefully short on creating jobs and creating them now.Want to create a ton of jobs and quickly? Slap the SBA w/ a big checkbook. The SBA runs out of money by Q2 every year. And remember that the SBA programs are a loan guaranty not real money.Who comes in asking for an SBA loan? An employer. Employers with money in their pocket are going to hire folks to execute their plans.Do you notice that there is not a single small or medium business rep on any of the panels or commissions? Who employs the most folks in America? SMBs!The stimulus contains a $900,000 disc golf course for Austin, Tx. Tell me how that works.Everybody cannot survive. Has the world missed Lehman? Bear Stearns?Darwin’s principles apply to almost every field of endeavor in which there is competition for resources and comparative outcomes. We have to give the resources to folks who get the desired outcomes.

    2. maverickny

      Hmmm, perhaps my memory is rusty but I seem to remember that the last Government brought us to the brink of this precipice and Paulson the conservative Treasury Secretary was the one running around, cap in hand looking for support for a financial bailout.Unfortunately, Barney Frank and the lady with the ghastly dress whose name escapes me, took him up on the offer and the rest is history. I would have liked a deeper analysis and surgical approach from Obama before rushing headlong into something with such major ramifications.Let’s face it, whoever came to power was inheriting a monumental mess from Bush and Cheney, a thankless task either way.

      1. JLM

        Let’s just say for the sake of argument that everything can be spun in such a manner that President Bush is personally responsible for each and every bad thing with which President Obama is confronted — what difference does it really make?The guy wanted the job because he said he could do the job. The only question is can he do the job? Will his plans work?When a fireman happens upon a fire, he does not spend his time inquiring as to how the fire started and who was responsible for starting the fire.HE JUST PUTS THE DAMN FIRE OUT.Can Pres Obama really put the fire out?Thus far we have the TARPasouras, the Porkulus, the Ears of Pork (the 9000 Points of Pork?) and the Gigantor Budget. All (less the TARPasouras in which Candidate Obama only consulted) have been created to solve the problem. They are his plans, they are his babies and they are his intellectual work product.I just don’t think they are going to work.What good does it do to blame it on President Bush and VP Cheney? And why is that even relevant?

        1. fredwilson

          I like the fireman analogy JLM and agree with it. Looking backwards is almost a waste of time unless you are a historian or doing a post-mortemBut in times of crisis, you need to act. And obama is acting. Whether his acts are correct is the source of debate and it should beBut obama is not wasting time thinking about bush and cheney and we should not be doing that either. They are gone, thankfully. Thrown out by the board of the US – the people

          1. JLM

            Just for the record Pres Bush was not on the ballot. He served 8 years and that is the max. So the idea that the people of the US threw HIM out is nonsense. I am not an apologist for Pres Bush and the Republican Congress, they spent like drunken sailors and their deathbed conversion is a difficult pill to swallow — I just hope that St Augustine actually did get into Heaven.It was brilliant for Candidate Obma to run against a “straw man” who could not defend himself — his detractors and most ardent critiques might find fault with it. Politics is not bean bag and his strategy was brilliant — more importantly, it worked. He was helped an awful lot by the awkwardness of his opponent and the ineptitude of his campaign. Who can really say how or why Candidate Obama won when he was running against such a weak candidate? Perhaps he won by default having defeated his only real rival in Hillary.Hope and change? WTF does that really mean? It is the bong pipe of the masses filled with the placebo weed of their own making. They voted for the “cool” guy. And he is cool. It is suspect whether the arithmetic margin of victory could even identify their VP candidate. Shows how “retail” politics can really be.Nonetheless, President Bush was not on the ballot. I think your comment that we should not be fixating on the past is the correct view of things.I agree that in times of crisis it is important to act. I would temper that by also saying that it is important to ensure that the acts are well thought out if you are going to commit a huge portion of your finite reserves to any single solution. If you were mixing up a new brew, you might make a small batch first before making 10B gallons.The acts should also be focused on fixing the most pressing problems first — this is my incrementalism argument. It is the triage approach. Stabilize the victim before attempting to move the victiim. Get a bit of feedback from the victim before deciding to go “all in”.In addition, it is very difficult to embrace an “everybody wins” approach. This is my kindergarten T ball rant — everybody gets a hit, everybody gets on base, everybody scores, nobody is out, both teams win and then we all go out for ice cream. Darwin never gets out of the parking lot. This is not real life. Bankruptcy court is where you go to figure stuff out when legacy contracts compromise the future of an enterprise which otherwise MIGHT be salvageable.While Pres Obama is stabilizing the patient, I question the wisdom of prepping for the NYC Marathon or pitching a $3.5T budget which includes arguably the largest expansion of government ever. A decent period of mourning might have been useful.The Ears of Pork or the 1000 Points of Pork just makes me sick, not so much because of its cruel, greedy hypocrisy but because it is such a raw and obvious repudiation of the basic integrity of Pres Obama. I was thinking for a while that we had gotten the ONLY HONEST POLITICIAN from Illinois. But perhaps not so much. It truly saddens me to see how cheap the price is on his soul.

  19. josh

    Fred, thanks for the post. You encourage me to articulate a thought that has been on the tip of my tongue for months: bailouts are for emergencies, but these companies are using the money to fund “business as usual” practices. The taxpayer’s expected return is survival of the core company for a couple of years, but the bailout is apparently interpreted by companies like Citibank as a means to maintain comfort level for a couple of months.These corporate welfare recipients need to strip down to the bare essentials, reduce burn rate to the lowest possible level, and THEN get a bailout. And yet these companies are using the money to pay bonuses, pay for trips, and pay for ridiculous ads, as if they weren’t on the ropes. It makes me mad that my money paid bonuses to these creeps for making horrible loans in the first place, and to see them waste it like this makes me spit.

  20. derrinyet

    I think there’s a place for government funding business, like the CIA’s venture arm (http://www.iqt.org/), and various state-level business incubators, etc.But in those cases, the government is actively funding specific priorities. Meanwhile, the federal government is hitching its wagon to a multinational corporation, hoping that they’re not just throwing good money after bad.

  21. jer979

    Let’s pretend for the moment that we’re on the same side politically ;-)Just wondering if your statement that “messes everything up” comes as a surprise to you? Or, given the nature of the debacle, both sides would have done the same?Given Obama’s campaign approach, I guess the question is ‘what were you expecting him to do?” Or is this just so big that it’s really out of his control and on the other end of Penn Ave?Lot of questions, eh?

    1. fredwilson

      Well let’s start with the understanding that the Bush administration startedthis bailout activity, not ObamaHe is now complicit though by his continued support of itI want to see him take a hard line and I think GM is where he should take itfred

      1. jer979

        That sounds very reasonable. GM is certainly a litmus test of whether wehave the guts to truly enter a Schumpeterian universe. Well, we have, butwhether we are going to embrace it or fight it, I suppose.At least you and I agree on what we should do there ;-)Best,Jeremywww.IgnitingTheRevolution.com

      2. JLM

        Let me quibble just a very little bit — Bush let Lehman fail and Bear Stearns get bear hugged to death — call it a private bankruptcy workout. And Merrill got shotgun married. That is not exactly “bail out” mojo — that’s my man Darwin at work. That was probably also the right move. He should have kept it up.I suspect more than a bit of that had to do w/ the fact that Wall Street guys like Paulson did not like Dick Fuld, who was an easy guy to dislike. I imagine a lot of old scores got settled. Maybe Fuld deserved it?It is difficult to believe that the TARP started with a 3-page document and a tale of woe from Sec Paulson to the Democratic controlled Congress. I guess you can scare the crap out of Congress if you tell them the entire banking system is getting ready to collapse? I imagine by that time, Pres Bush was already booking tee times at the Dallas CC and looking at chain saws at Sears.The TARP was mythically focused on the banking industry and the credit markets.Lehman, ML and AIG was one hell of a 3-day period. For the record, who was in this to his eyebrows — Tim Geithner in his role as the President of the NY Fed. Not being critical, but he was giving the thumbs up all along. This is the guy who could not quite figure out Turbo Tax (hey, I feel his pain) but he is the ONLY guy who can fix the global financial mess?I give Pres Obama a complete free ride on everything that is causal and on the first couple of steps. That’s only fair. But he owns the auto problems and his election as President has made the resolution of the auto crisis infinetely more difficult because of the UAW (“Hey, WE elected YOU President, you owe US!”).He owns the stimulus and the HASP and the new budget spending.By the time the fire went to a second alarm blaze, Pres Obama was the Chief. We are now at the seven alarm stage.I am rooting to be wrong, very, very, very wrong but I think the TARP, Stimulus, HASP and budget priorities, raising taxes, class warfare are all losing propositions. I am very, very worried. Maybe President Bush (Yale, Harvard MBA) wasn’t smart enough to understand the problem, but President Obama sure is.

      3. Andy Freeman

        > I want to see him take a hard line and I think GM is where he should take itObama will throw a lot more money at GM, Chrysler, and suppliers to protect pensions and jobs. He may eventually give up, but he’s at least $10-20B from that point and $50-100B is more likely.FWIW, if he let GM, Ford, and Chrysler count their imports against their domestics for CAFE[1] or simply let them ignore CAFE, they could stop making/selling small cars at a loss in the US and concentrate on the big cars/trucks that they actually make money on. (Their domestic small cars aren’t as good as Toyotas, so they have to be sold for less.) Yes, they’d lay off some folks, but they’d actually have a profitable biz.But, Obama won’t do that.[1] The “two fleet” rule is essentially a death sentence for domestic manufacturers. They don’t get to meet CAFE over their total sales, they have to meet it for their domestic production separately from their imports.

  22. kidmercury

    lol, whatever. i’m going to hate on all you youngsters who are just now joining the hate big government party. this is coming after all ya’ll you voted for obama — who was all about the banker bailout frenzy — and after ya’ll refused to give even the slightest of props to my boy ron paul, who saw this whole mess coming and was/is committed to stopping it, and was the real candidate of change (though i gotta give props to kucinich, cynthia mckinney, gravel, and nader, they were legit candidates as well, just not my personal cup of tea). but hey, you wanted a rock star president instead of a public servant, so you got exactly what you wanted. lucky you.but whatever, let’s not hold grudges. you are still our brothers and sisters, and so we are glad to have you join the hate big govt party. so ya’ll are serious about change? ya’ll want to see big govt become small govt? you want to see a return to capitalism?do two things:1. get active to end the fed (because they are messing around with the money supply, rather than letting the free market handle it)2. get active to let people know that 9/11 was an inside job (because that is the phony lie this whole big govt scam is built upon)until then, it’s all talk. and this whole system will not return to stability until those two issues are addressed.

  23. SSL

    I agree that it causes problems in the natural order of the economic landscape. However, it is like a perfect storm with each of these companies being foundational companies in a large house of cards. Without the bailout money, it wouldn’t just be the hundreds of thousands of employees for these companies that would lose their jobs, there would be thousands of smaller companies that feed and supply the larger ones that would be lost. It is depressing that they are so blantantly irresponsible in their spending decisions, but I fear without the support of tax payer dollars right now we would see massive collapses across entire industries, not just the primary businesses in trouble.

  24. example

    LOL, Citibank’s problems are far greater then where it spends it’s advertising dollars. Come on.

    1. fredwilson

      It’s a fucking metaphor

      1. kidmercury

        hahahaha, way to put the smackdown boss! though given this fool’s handle it would have been more fun IMO to use the word “example” instead of metaphor.” lolhope you did not waste too much energy on this clown though. remember he is the punk ass chump who thought JLM’s guest post on housing was an assault on apartment renters. lol, quite possibly the most ridiculous misinterpretation in the history of blogging. i’m not exaggerating.

  25. bijan

    somehow we have stomach to finance corporate bailouts of the worst kinds and finance wars that should have never started but we don’t have the stomach to pay for education, healthcare, our vets, the list goes on.

  26. Guest

    I have heard stories how once upon a time there were these mythical figures, called Directors, who exercised an equally mythical thing, called fiduciary duty… Unfortunately, since these creatures seem to be long extinct, now the burden falls on the Government and people like the Gotham Gal…Say what you wish about Obama, this quote from the campaign sealed the deal for me: “a corporate culture rife with inside dealing; questionable accounting practices and short-term greed”. The system is broken; the natural lines of shareholder oversight are broken and ignored; reluctantly, the Government is the only player with the authority to do something…Here is a nice post by Matt Yglesias:http://yglesias.thinkprogre…”You also have the opportunity to throw out the top layer of management and especially the inept boards that created the situation. “

    1. fredwilson

      Some directors take their job seriously

      1. Parkite

        Some do, some don’t. But they ALL take home nice comp packages. And most are appointed as Diretors due to friendly relations with mgmt. Krassen is right.

        1. fredwilson

          I was thinking of private companies and the boards I sit on where thosepractices are less common

        2. JLM

          A Director who has any real net worth today has to be pretty damn careful as it relates to D & O exposure and the coverage offered by an insurance policy. It is a very difficult thing to attract good quality Directors to small and medium size public companies because of liability exposure, SEC risk and SOX obligations.Today you have to do right by the SEC and the PCAOB — two sets of regulators. You have to serve on the nominating, compensation, audit, governance committee, etc. etc. etc. And for what? You are lucky to get $20,000 and a pocketful of options. Meanwhile you may have unlimited personal exposure when you blow through the D & O policy.The poor guy who has to be designated the “financial expert” under SOX is in deep trouble.Rubin, a former Sec Treas, had a damn tough time keeping Citi floating between the buoys. You could argue that he eventually failed.I just hope that in the course of re-writing all the SEC and PCAOB regs somebody spends some time thinking and developing a general indemnification theory for corp Directors. Otherwise, nobody would ever serve on a public company board.

          1. fredwilson

            I love being on boards but I will get off the board as soon as it goes public. That level of scrutiny and liability is not for me (or most people)

          2. JLM

            Speaking of liability — I wonder how long it will take for a shareholder to sue GE over Immelt’s utterances in regard to their dividend policy. Perhaps the single most damning and memorable utterance from Ken Lay of Enron fame was his assurances that the stock was a good buy for 401Ks. Meanwhile, he was selling.

  27. ap

    I am a little surprised that everyone is pointing the finger at citi for the nytimes ad and no one mentions that it is the ad-agency who must be doing some crappy media buying that deserves the boot, not to mention citi is a little pre-occupied making ends meet. I am not defending citibank, but if anyone goes outside of the US especially India, you will notice citibank’s global presence. And yes, I am not a citibank employee 🙂

  28. vincentvw

    “Being the CEO of a company who has taken government money is like having a big target on your back. Everything you do is going to be second guessed, debated and discussed like never before.” Love that quote, welcome to Europe! 🙂

  29. Jim in Colorado

    I have a good numbers of years in marketing, but I wont “arm chair fortune 100 marketing exec” that this is an “obvious” marketing mistake. I am sure their budgets have been slashed but they still have millions to spend and so do their agencies.Maybe they have a long term deal with the NYT? Maybe the older wealthy demo who still reads the paper is who is still opening new accounts at Citi. I don’t think anyone here can presume to know that (unless they have done it themselves) or has that experience to know what a company with over 100 billion in sales should and shouldn’t be spending to at least maintain that revenue, and I am sure they need to maintain it to pay back the government.I think these things are getting a little silly. Take the Goldman Sachs event in Vegas. From what I read they paid a huge cancellation fee ($600k) to move it to SF and the cost of hotels, flights, and food would be much much more for all the attendees. All in the name of appearances. Not good business. Also, if a company like Wells Fargo rewards its top employees with a junket maybe they do more to help the company rather then jump to a bank or another job not under such scrutiny? As a small company we spend 10s of thousands on trade shows and such when we really cant afford it, but we also feel we cant afford not to to maintain business. I can only presume its an order of magnitude when you are 8, 9, or 10 digit revenue company.

  30. Eben Thurston

    “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”– Henry HazlittEconomics in One Lesson

    1. Noah David Simon

      we solved Iraq with a surge. more investment (blood) and selling off parts to he worst element. perhaps our present economic war is no different. we need to put trust in the bad guys.

  31. danhung

    With regard to the Citi newspaper advertisement, it just seems that Citi can’t win. They’re getting reamed over the naming of the NY Mets stadium even though a very good argument could be made that it’s a very high ROI marketing investment. On the other side, people get upset when they use traditional marketing routes like newspapers. What can the Company do that people will be satisfied with? I think we all agree that some form of marketing is necessary to sustain their business.

  32. Kasi

    Irrelevent comment ….The photograph is great… in terms of aesthtics and content…The blackish background with dents (is it varnished wood or marble?) and ligtingon one side of the paper…light on real problem.On top it talks about a security manager turned janitor on tears with hiswife and at the bottom citi wasting janitors money!!!.A single-piece representation of early 2009.(Good to have the touch and feel of NYT after 10-years from otherside of the world…thanx to CMOS technology).

  33. Scott Chait

    I feel like the Fred Wilson quote alert! I’m sure you saw Crovitz’s piece in the WSJ where you’re quoted. An outstanding read.: “Too Risky for Venture Capitalists:Why proposals for a government bailout were roundly rejected,” by L. Gordon Crovitz, WSJ 3/2/09http://online.wsj.com/artic…

    1. fredwilson

      I guess he reads this blogMaybe he’ll comment too someday

  34. Jerry solomon

    i noticed that bank of america advertised on your blog. does that mean that you are taking TARP money? if so, as a taxpayer, i insist on congressional oversight on all future postings.

    1. fredwilson

      Yes, I am taking TARP moneyAnd giving to away to charities!

  35. deadvoter

    First of all Northern Trust signed on 2 years ago to sponsor the golf tournament. Northern TRust’s Clientele cater to high net worth clients. If they throw a party for their clients to retain them attract new ones, that is how they do business.Northern Trust was one of those banks doing just fine. They were forced to take the money.Now Congress who has no clue about business is telling Northern Trust how to do theirs. Congress who has a post office banking scandel that sent Daniel Rostenkowski to jail, now telling banks how to operate.Barney Frank one of the chief architects of this finanical crisis is now telling banks what to do. Did you know Bush tried 17 times to instill stiffer regulations on Fannie Mae & Freddie Mac, but was rebuffed by Congress? 17 times.Maureen Dowd needs to put away her Jump-To-Conclusions mat, and dig a little deeper.I’ve worked at 7 major financial institutions including Northern Trust. And I can tell you from working there that they are a damn good organization. In fact they hold Obama’s Mortgage on his Chicago home. They are profitable and continue to be. They only took the money because the Gov’t forced them to. The Gov’t insisted that if only troubled banks took the money, then there would be runs on those banks.Northern didn’t want the money and didn’t need the money.

    1. fredwilson

      And that’s my point. Its fucked up once gov’t starts funding businesses, andputs targets on the backs on even the good ones

  36. GoldBuggg

    Then bankers and our Government representatives are corrupt to the core. There will be no justice for the people.Everyone has been betrayed on a colossal scale and we must defend ourselves by exiting all assets and hunkering into cash. We’ve been betrayed and lied to by bankers, politicians, military brass, and corporate chiefs. By the way, cash is prescribed in that perfectly crafted document called the US Constitution. Gold & silver are the only forms of money that can legally satisfy debts public and private.Anyone who believes that the US Dollar will prevail and survive this turmoil as the global reserve currency is precisely as incorrect as those who believed the US banking system could survive the mortgage debacle as it unfolded. We’re witnessing a long slow drawn-out death experience for the US Dollar, liquidation of the US Economy, to be followed by a default by the US Treasury Bonds. During the panic phase, the response in the gold & silver prices will be profound, with advances to date only a prelude to a march to $2000 gold and $50 silver. This article is an excellent map of unfolding events in this massive economic disintegration. The following article will give you a good idea of where we’re headed in this global calamity: http://www.goldnewswire.net