Surprisingly good news from the Financial Times today (via Tim Ferholz). The United States has made almost $11 billion on its 34 percent investment in the super-struggling bank Citigroup. This is, as the article points out, the the federal government's only direct stake in a large financial institution.


From the FT:

In contrast to Switzerland, which sold its 9 per cent UBS stake for a SFr1.2bn ($1.1bn) gain last week, the world's other large economies - except the US - are sitting on combined losses of $10.8bn relating to their holdings in the equity of listed banks they bailed out over the past 12 months.

The US government, by contrast, is sitting on a paper profit of almost $11bn on its 34 per cent shareholding in Citigroup, its only direct stake in a large financial institution.

The article reports that our $11 billion paper profit "more than offsets the paper losses of all the other significant state interventions in listed banks - in the UK, Germany, the Benelux and France."

Tim's reaction is a smart one. Our bank strategy might not have much of a through-line (Let Lehman fail, then guarantee AIG for more than $100, start doling out TARP to struggling banks, propose and un-propose and re-propose public-private plan to buy toxic assets, and so on) but it appears to be working, insofar as our banks are much better capitalized now than they were seven months ago. When the dust settles, economic historians (and really, anybody with an opinion) will be able to look back and assess the varying health among our financial institutions to conclude whether our ad hoc approach was instinctive but sound, or messy and fundamentally harmful, but to me, this article is another piece of information to file under: Things Really Could Have Been So Much Worse.

Update: Love it when this happens. As soon as I wrote and published the words "Things Really Could Have Been So Much Worse," I checked out Ezra Klein's most recent column which begins:

"'Things could have been a whole lot worse' is not a very effective political slogan. Not only that, but it's not a very effective political strategy."

Glad I read that, because there's an important distinction to make between two over-arching administration goals with regard to the banks. The first is to make the banks stable again. The second is to use the crisis as a Rahmian opportunity to reform them. But the success of the second goal is actually predicated on the delayed success of the first goal: The healthier our financial system appears, the less political will Obama will find to reform it.

When the administration first said that financial reform was on the docket after health care and the cap-and-trade bill, alarm bells set off in my head. Cap-and-trade is going to make passing health care look like passing a Senate motion to break to lunch. Climate change is a terrible set-up for any serious legislation, and the timing of the financial reform bill will likely coincide with high bank health, low public will and depleted congressional momentum: a perfect storm. That's not to say that we won't pass any kind of financial reform bill, but it's probably going to be weaker -- and arguably worse -- than the bill that might have been passed in 2009.

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