Sunday, November 23, 2008

Rescue of Citigroup -- More Turbulence in the System

Bad news impacts markets, and so does uncertainty. If you do not know the rules of the market, or who the major players are going to be, you cannot form prudent estimates of the future of the market.

According to the latest report from the NY Times, it is too early to tell exactly how the bailout of Citigroup will be structured, but some level of assumption of troubled Citi assets will apparently be involved. Didn't Secretary Paulson decide that such purchases were not the best way to expend funds from the TARP? The source of the funds has reportedly not yet been decided, but the principle is the same.

If the Citi deal results in a general approach that can be applied to other institutions, that might help to remove some of the uncertainty, but in the face of such policy turbulence it will be hard to build confidence.