March 9th, 2009
03:30 PM ET

If big banks fail...

Program Note: For more on the economy and the banking crisis watch Ali Velshi tonight on AC360° at 10 p.m. ET.

Ali Velshi
Chief Business Correspondent

Citi is something like 20 percent of US bank assets. By contrast, back in the Savings & Loan crisis, ALL of the S&L's COMBINED were less than 10 percent of US bank assets.

Here's what happens if a company as large as Citi fails:

– Investors and depositors, fearing failure of smaller banks, would take their money out, triggering further bank failures across the country.

-There would be less money available for loans to support economic recovery

Filed under: Bailout Turmoil • Citigroup • Economy • Finance
soundoff (27 Responses)
  1. Annie Kate

    How did these organizations get so big? What happened to the anti-trust legislation to keep companies from becoming so large and taking everything down with them when they failed? I think we can all see now that "big" is not always better.

    March 9, 2009 at 9:04 pm |
  2. Kim

    It's starting to remind me of a roller coaster ride ! When does this end ? No,maybe the old scary carnival fun house and the clowns pop out and say boo ! It was a maze of twists and turns to finally find the out door. Are we out yet ? Hold your hands up and scream ! Send Stimulus !

    March 9, 2009 at 8:58 pm |
  3. Jeff

    Why are anti-trust laws not applicable in all these mergers. If we can stop the giants from getting bigger and break them down, won't this start to help get the economy with fair competition?

    March 9, 2009 at 8:23 pm |
  4. joel monroy

    Let the fed help citi but let it also make public its payroll its bonuses and more important its lending that it is giving to help the recovery of this economy. If CITI bank is being honest and helping the struggling citizen, the same citizen that is BAILING it out then they will win the peoples vote of confidence and more importantly there DEPOSIT!

    March 9, 2009 at 8:17 pm |
  5. xtina, chicago IL

    There are banks (mostly local ones) that have healthy balance sheets. I suggest we let the badly run banks close up and let the successful, well-run ones take up the slack.

    March 9, 2009 at 8:05 pm |
  6. Ron Scheurer

    Big banks, as with big companies, fall prey to top heavy managers who do little but add cancerous growth to their respective organizations.

    Limit company size to 100 employees where the top executive gets paid no more than ten times the lowest paid employee; and the profits are shared proportionately.

    Economies of scale that supposedly favor ever larger companies is an unexamined myth.

    March 9, 2009 at 8:00 pm |
  7. Mike

    I am glad that the current administration is sane enough to recognize the dangers of letting one-fifth or more of our banking system collapse just because a few blowhards in Congress like to talk tough. One way or another we are going to pay for the banks mistakes; lets do it in an orderly and controlled way.

    Hoover let the banks fail and the result was a staggering contraction in GDP, 25% unemployment, 90% loss in the stock market, and political turmoil worldwide ending in WWII. Let's not repeat those mistakes.

    March 9, 2009 at 7:41 pm |
  8. Jim M

    How many neighborhood bank has Citi bought-out over the past few decades? Perhaps the opperative term should be DIVESTATURE and not nationalization or bankruptcy.

    March 9, 2009 at 7:39 pm |
  9. Joanne Pacicca, Solvay, NY

    I'm stacking funds in my little credit union, insured and not the prey of the greedy financial system.

    March 9, 2009 at 6:55 pm |
  10. abc ~ anything but california hugh

    No more bailout money to banks! I'm beginning to see a pattern here. I'd bet these greedy spineless CEOs are smoking $100 illegal Cuban cigars and drinking $300 dollar bottles of scotch in their high rise penthouses laughing their asses off thinking these stupid America politicians are dumber than the dumbest jackasses and are just giving us money that we do not deserve!

    Let them fail, these banks are insured, we won't lose a dime, let them lose their money. "Don't fall out of any windows!"

    March 9, 2009 at 6:33 pm |
  11. Canadian mom

    I was shocked when I heard there were thousands of banks are in the states. We only have six banks in Canada, and thankfully they didn't make the same mistakes with sub prime loans. Some are even showing profits (perhaps from all those user fees.)

    I'm hopeful that Obama will help things turn around by next year. America is our largest trading partner and we are experiencing spill over from the down turn.

    if there is one positive it is that more people will go back and stay in school to help North America become more globally competitive for the twenty first century.

    March 9, 2009 at 5:46 pm |
  12. Luis

    why are trying to sell fear CNN? Let me talk.

    Look people. Wells Fargo, Bank of America and JP Morgan were able to sell bonds in return for quick cash. Meaning their is still confidence.

    Dont let the fear mongers in the media get to you. If people start to panic, the situation will only get worse.

    Trust me here. Their is still a lot of people working, buying stuff. Stop the doom and Gloom CNN will you?

    I thought CNN wanted Obama to succeed. I guess not

    March 9, 2009 at 5:16 pm |
  13. Jorge

    Small Business Stimulus Plan:

    Give small businesses that have been in business a minimum of 5 years and with less than 100 employees a $400,000. grant. The only catch is that $300,000 has to be used on additions to staff salaries and benefits. $750 billion split by $400,000 is 1.875 million small business grants and close to 8 million new jobs. Small businesses employ more than 90% of U.S. workers. This plan will get people back to work and boost the economy.

    Government would get a good portion of these grants back in the form of payroll taxes. Local governments would get a boost from increased sales taxes from goods purchased by those employeed by the small businesses. This is a win-win.

    March 9, 2009 at 4:45 pm |
  14. Gene Penszynski from Vermont

    @xtina ..... The biggest thing that has been badly run over the last eight years has been the Federal Government under G W Bush and his Republican counterparts. De-regulation and lack of oversite have allowed human GREED to reign supreme with the resulting chaos in 'the markets' and our lives. The 'Free Market of American Policitcs' , however, has begun to work.

    The first step has already been taken in THIS 'Free Market'. The Republicans have been allowed to FAIL and as deserved they have been removed from any leadership role as a result. Now its time to let the 'Free Market of the Majority of the American People's Will led by President Obama ' lead us on to recovery.

    March 9, 2009 at 4:40 pm |
  15. Tom

    Before we can let the banks "fail" and see what, like a Phoenix, rises out of the ashes, we have to look what type of environment in which these new systems are allowed to blossom. Definately we need a regulatory framework that requires banking, investment & insurance interests operate within a known and understandable framework. That framework will have to "control" the greed we all witnessed (and took part in when and where available) that helped to bring about the economic crisis we face today. This system will not be developed with any ease whatsoever. Glass-Steagal was eliminated by the Republican congress in a bill sent to then-president Clinton who agreed to sign it as a quid pro quo. Unfortunate, we know today, but that is 20-20 hindsight. It's going to be years and year in repair...

    March 9, 2009 at 4:18 pm |
  16. Arachnae

    -There would be less money available for loans to support economic recovery

    How do you figure? Why would we not be better off putting all the money needed to 'rescue' citi into a brand new bank and use the capital we saved by not rescuing them to make loans to qualified borrowers?

    March 9, 2009 at 4:09 pm |
  17. Kaitlin

    We can't let all banks fail. Particularly big banks. We need to keep the economy from going further down the toilet, which is what will happen if we allow big banks for fail, and people pull their money out of small banks, etc. However, when banks get money to bail them out, WE NEED to make sure they use the money properly and do what they need to, to get back on their feet and not spend the money in the wrong ways. WE NEED to hold them accountable. If they don't use the bail out money to get back on their feet and use it for unnecessary things, then they deserve to fail. What I think would be ideal though, is for the CEOs who have their private jets and million dollar bonuses, to start putting some of their own money into their business to help bail it out, instead of depending on the government, when it was most likely their fault to begin with, giving out loans to people who can't pay them back. Give up a little to save a lot. People do need to be held accountable for their actions. But we are at a point know where we can't just let things go and let everything fail. We cannot afford to do nothing. But it is time to hold people ACCOUNTABLE. It is time to make businesses more RESPONSIBLE for their actions. At this point we can no longer fend only for ourselves. "Live together. Die alone."

    March 9, 2009 at 4:09 pm |
  18. TheRealReason

    The real problem if banks fail that the government and banks are worried about, is not that main street America will suffer (which it will) but that a lot of very rich and politically connected people, will be out of jobs and will lose a portion of their millions/billions in personal wealth. That is way the government cannot make the hard decisions to overall a failed system.

    March 9, 2009 at 4:04 pm |
  19. David Welts

    The explanation above is exactly why the government WILL NOT let it happen. We will never witness the failure of Citibank. The Obama Administration will do whatever it takes to keep them alive.

    March 9, 2009 at 3:59 pm |
  20. Scott

    Really? Are we supposed to care? I worked for nearly 20 years at these big banks and frankly to have them fail would be the best thing for America. Yes, there will be people out of work, however, these banks all became way to bureaucratic, greedy and impersonal. Out of these ashes will arise a new, more transparent banking system. The banking system got into a death spiral that there is no recovery from. Let the big banks die and let's move on with our lives.

    March 9, 2009 at 3:55 pm |
  21. Linda Strasberg

    Why is this happening to us?

    March 9, 2009 at 3:52 pm |
  22. Mari, Salt Lake City

    Last night's "60 Minutes" first segment was on the failure of Illinois' Heritage Banks. The FDIC allowed the filming of their evening take over of the failing bank.

    The CEO of the bank that ended up buying Heritage Bank, said "bank failures should be allowed, to clean up and strengthen our banking sector." I agree. Many of the banks failing became very greedy, lending to anyone who "looked human" and betting on the housing market!

    I still blame the Republicans who controlled both House and Senate from January 1995 through January 2007........ they did their very 'best' to DE-regulate Wall Street and the banks...... now we have this disaster!

    Thanks GOP........ and they wonder why they lost the elections!

    March 9, 2009 at 3:43 pm |
  23. Jose M Lima

    What interest rate are these bank we are bailing out paying; and how will the returns be spent?

    March 9, 2009 at 3:42 pm |
  24. Michael "C"Lorton, Virginia

    If I had my money in CITI, and I don't, I would not wait until it failed--my money would already be out--because if you don't take of your money--we know how the banks will take care of it--they spend it.

    March 9, 2009 at 3:41 pm |
  25. jimj

    If the Banks Fail we go back to the barter system. We go back to Making things at a price people can afford without credit. Ali- I can live without Banks, BANKS Cannot survive without Customers. They want to screw preople then they loose customers, they loose customers they loose bussiness, they loose bussiness they follow the Dinosaurs & become EXTINCT! If I do not have the CASH to buy it, I do Without. Let the Bankers join those they screwed in the Un employment & Foreclosure line & Have a taste of their own medicine.

    March 9, 2009 at 3:33 pm |
  26. Melissa

    If banks fail... what? They'll be forced to learn from their bad business practices instead of relying on everyone to keep kissing their greedy butts.

    March 9, 2009 at 3:30 pm |
  27. xtina, chicago IL

    I think we should let badly-run businesses go away.

    The banks that the federal government (i.e. us taxpayers) are bailing out are the ones with bad management and high risk. We're saying to the worst of American companies, "no problem, we'll let you carry on". There has to be a few banks with good management that might buy the bad ones. Why doesnt the government help well-managed companies buy up the bad ones?

    March 9, 2009 at 3:28 pm |