The near-death moment that Citi experienced in November is as close as one can get to a perfect lesson in confidence in banking, and how to lose it. Everyone knows that without confidence banks fail – fast.
So what caused confidence in Citi to evaporate so quickly? Within five days its stock fell 60%, below $5 – a level at which certain institutional funds became forced sellers of the stock. It was a precipitous descent that appeared to ignore reasonable assessments of whether the bank was a going concern and that would lead – inevitably – to a bail-out. And so it came to pass, with the terms of government assistance so generous as to support a general rally in financial stocks and Citi’s CDS snapping in...
