Obama's Speech Last Night

Thanks Les@SpillingBuckets for suggesting this blog post.

Last night Obama gave his first speech to a joint session of Congress which was filled with promises and hope, but steeped in realism and candor that had been missing from Bush's speeches. The quick and easy reaction can be seen from the reaction of the stock market. There, red was the predominant color of the day, albeit muted from Monday's dip.

The problem remains that Obama's overall rhetoric remains just that: rhetoric. Without a definitive plan and a focused method of exiting the current financial crisis, it is difficult to see the impact of Obama's speech other than to let the nation know that their president knows what they are going through.

One major issue that Obama did not address last night is the possible nationalization of some major financial institutions, such as Bank of America and Citigroup, as well as the status of the de facto nationalized company, AIG.

As the government continues to haphazardly provide capital for equity stakes, the government is becoming a larger and larger shareholder in many companies, and even though this is not technical nationalization, it might as well be.

What will the Obama administration do? There is no answer.

The rest of his speech was similarly lacking in answers, and was reminiscent of his recent "Recovery Plan is Coming from Geithner tomorrow", which was then followed by Geithner's "We swear we'll do something" speech the day after: a lot of pretty words without real substance.

Financial Times said it best:

One wonders how much longer Mr. Obama will be able to give this speech. He said nothing new. He offered no real information to explain what will become of the banks, or how the budget deficit will eventually be brought back under control, or how his expensive and increasingly confident promises to reform education and healthcare will be paid for. In every case, it was “details to follow".

Well Obama (and Geithner), if you want to solve this crisis anytime soon, its time to pony us some details.

Citigroup: The fall of a giant

Unbelievable.

Citigroup, once the world's biggest financial services firm, still with 300K employees worldwide, will announce their 4Q 2008 earnings Friday. It is expected to be dismal. Their stock today hit a low of about $4.50 a share. They are planning to cut themselves down to a third of their formal glory.

And all this, while receiving TWO bailouts from the US TARP fund totaling $45 Billion.

As a former employee (I left over a year and half ago), I am amazed. When I joined the company, it's stock was at about $35/share. Its future looked bright and landing a job at the company meant a lifelong career, if you played your cards right.

Today? People still want to go, but that lifelong career option is quickly fading.

However, Citigroup is representative of many companies in the US. Sure, while the CDS issues and general stock market malaise has contributed to Citigroup's downfall, just like the other failing/failed companies (GM, AIG, Chrysler, Lehman, etc), the root causes of the problems came from within.

Its management never fully integrated any acquisitions. Management was paid to maximize annual profits, and they did. Unfortunately, too often, annual profit maximization led to wild speculation and taking on mountains of undeterminable risk.

And so the government came up with a great plan: keep management in power but give them more money.

No.

The problem isn't the lack of money. The problem is the lack of management.

Why doesn't anyone see this?