Citigroup’s Corbat Says Spending Needed for Full Recovery 1


Bloomberg has the article Citigroup’s Corbat Says Spending Needed for Full Recovery.

This article is interesting for both what it says and what it does not say.

Michael Corbat, hunting for revenue seven months into his tenure as chief executive officer of Citigroup Inc. (C), said the improving U.S. housing market and declining unemployment won’t ignite the nation’s economy unless companies start spending.

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“Until we really see the other side — that corporate side — step in, I don’t think we can look and say that we’ve really got a full U.S. recovery.”
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Corbat and his fellow CEOs at other U.S. banks need stronger economic growth to fuel revenue that’s being undermined by a slump in trading and regulators’ efforts to rein in risks in the wake of 2008’s credit-market turmoil. While the nation’s six biggest lenders increased total first-quarter profit by 45 percent, their combined revenue fell, leaving most of them to rely on a mix of tax benefits, staff reductions and cost cuts to increase earnings.

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Corbat, who previously led a unit that disposed of Citigroup’s unwanted assets, replaced Vikram Pandit, 56, as CEO in October after Pandit navigated the bank through a near collapse and repaid a $45 billion U.S. bailout. Since taking the helm, Corbat has announced plans to cut 11,000 workers and pull back from markets such as Turkey, Pakistan and Uruguay.

The banks are making money by cutting their size in assets and employees.  This is good, as the banking sector had grown to be  far too large a fraction of the economy for the health of the economy.   So, although business in general is hiring, some of that is being offset by layoffs in Citigroup itself (and I presume others in the financial sector).

So Corbat sees a variety of economic sectors shrinking and enlarging, wants the business sector to grow even more, but what he fails to realize is that temporarily, the only way for the employment to rise and unemployment to fall is for the federal government to stimulate the economy.  This stimulus is the fastest way to get business to grow at the rate for which Corbat wishes. Moreover, this stimulus in terms of building and improving infrastructure is something that the economy needs anyway.  Meaning this is what we need to do, and now is the time we need to do it.

I have been reading the book Who Owns The Future? by Jaron Lanier.  Lanier was the subject of my previous post, How Silicon Valley is Hollowing Out the Economy (And Stealing From You To Boot). He explains why technology and its ability to displace workers is causing a shrinking of the middle class.  He shows that what we are trending to in the “free market”, “capitalist” economy is neither free markets not capitalism.  The ability of a few companies to dominate their markets is based on knowledge that they acquire through massive computer technology that is not shared with the other parties with which they deal in the economy.  In previous eras up to the current one, insider trading in stock markets has been outlawed, but the definition of what is insider trading has not kept up with changes in technology.

If you want to understand the huge changes that are going on in the world’s economy and in society, you really need to read this book.

The import of the book is though economic stimulus is needed, far more than that will need to be changed in order for the future health of society to get better.


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