Today brings some pretty grim news, on top of the bad news that has been percolating over the past few months. First, wholesale prices really went sky-high in 2007:
Wholesale inflation last year shot up by the largest amount in 26 years while retailers suffered their worst December shopping season in five years as mounting economic woes caused consumers to put away their wallets.
The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.
Meanwhile, retail sales fell by 0.4 percent in December, the worst showing in six months, the Commerce Department reported. Consumer confidence has plunged, reflecting the worsening housing slump and a lingering credit crisis.
This shouldn’t shock most people who have felt the pinch in their wallets, particularly those who had to pay a lot more for gasoline. The notion that people were falling deeper into debt over the past decade and that the housing bubble was just masking the eventual financial calamity people would face was no secret. We’ve written about this extensively (for example, here and here and here). But, while greed and avarice are on a rampaging run, why would the prognosticators and policy makers actually stop to wonder what the bad, inevitable end result would be?
And, then, today as well, we learn of the deepening doo-doo that Citibank finds itself in:
Citigroup announced a steep cut in its stock dividend and another big investment by foreign investors on Tuesday after taking another big write-down related to subprime securities and posting a $9.83 billion loss for the fourth quarter.
Beginning what is expected to be a grim week for financial company earnings, Citigroup said it was writing down $18.1 billion because of soured mortgage-related investments.
As part of a plan to shore up Citigroup, the chief executive, Vikram S. Pandit, said the company would eliminate 4,200 jobs and cut its dividend by 41 percent, to 32 cents from 54 cents a share.
Citigroup also turned to wealthy foreign governments again and announced the sale of a $12.5 billion stake to the Kuwait Investment Authority and several others, including Prince Walid bin Talal of Saudi Arabia. In November, the company sold a $7.5 billion stake to a Middle Eastern fund, the Abu Dhabi Investment Authority.
Again, greed and avarice. And who pays? The 4,200 people would will be without jobs because the greedy managers at the top could only see quick cash to be made, not the long-term damage that would be an obvious result of the go-go attitude around subprime mortgages.
