A Hard-Earned Lesson

Citi has just written off $18.1 billion in bad loans. No wonder that they had to go begging, on their knees to the oil potentates. That money had to be paid back to the people who had invested it in Citi with an eye to making a bit of interest. The big bank didn't have an option to go back to its clients and say, sorry, we lost it.

Don't go pulling your money out of our bank just yet, Gary Crittenden has implied. We've learned our lesson and we're taking steps to not get so deep in the hole again.

We've learned that it is bad business to loan money to people who are obviously too poor to pay it back. Who would have guessed, right? All along, we thought that extending credit to folks who were maxing out their credit cards was a good thing, and it turns out, it wasn't.

Sure we should have listened to our grandparents when they told us not to throw good money after bad. We're listening now, aren't we? No more easy credit.

Now, people like certain bloggers who shall remain nameless have good credit histories, and we're sending out e-mail offers to people like them. Get a lower rate, transfer your balances, we'll give you credit. We like you. You pay your bills. You are what used to be called a good risk.

John Garvey of PricewaterhouseCoopers has taken note. Citigroup has a "keen eye on the balance sheet" as they issue credit. Yes indeed, Citigroup has finally noticed that red ink is not an attractive hue on the bottom line.

They won't be making any sub-prime mortgages any time soon, even though those financials looked so good on paper. People with good credit were only paying 5%, while the sub-primers were scraping together 9%. Mathematically it was a no-brainer, except someone forgot to calculate the effect of those loans not getting paid back. Citi took a while to catch on, but they're not going to fall into that trap again. They've learned that if borrowers can't pay back the loan, the bank is left holding the bag.

Makes you wonder what they're teaching at the business schools. Common Sense 101 must have been dropped from the course offerings.