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Friday, November 14, 2008

Financial Crisis: Citigroup's remedy questionable !!??

Author Thomas Ramseyer
Citigroup announced on 14 November 2008 lower the number of employees from 350'000 to some 290'000 by the end of 2009. Furthermore Citigroup will increase interest rates by 3.0% for almost 20% of its 54 Million debtors.

These are veritable swords having - as we know - two edged blades. Cutting 60'000 heads means cutting as well 60'000 customers.

Sacking employees means sacking most loyal clients
Sacking 60'000 employees
causing cost of assumable USD 200'000 per capita saves USD 12'000'000'000 per year. On the other hand the disposable income will be seized down by the same amount; i.e. USD 12'000'000'000.

Interest Rate increase 3.0% p.a.
Increasing interest rates by 3.0%
p.a. for 10.8 Million debtors - with an assumable average debt of USD 10'000 - amount to some USD 3.24 Billion per year. Here as well the disposable income decreases by the same amount.

Magic potion becomes evil poison
Thus Citigroup's magic potion turns out to be US-economy's evil poison. By saving their own ... Citigroup is risking the others' ... if not the whole economy's one.

Disposable income diminished by USD 15.24 Billion
To cut it short the consumers' disposable income is going to be lowered by a total of USD 15.24 Billion or USD 15'240'000'000.

Equation: Citigroup's cost cut + Rate increase = GDP decrease

for illustration:
60'000 * USD 200'000 + 54'200'000 * 0.8 * USD 10'000 * 0.03 = USD 15'240'000'000

Possible impact on the economy
1) Citigroup's financial results ameliorate in the short run.
2) Citigroup's service quality deteriorates in the long run.
3) Citigroup's activity aggravates the economical crisis furthermore.
4) US GDP lowers by Billions of USD.
5) Other industries are affected to the worse.
6) Economic-stimulus checks amounting to USD 10'000'000'000 will compensate only 1/3 of Citigroup's cutting.

Again, it is as easy as that: Sacking your staff means sacking your customers!!

Momentum to pick up - vicious circle kicked off
This rule is valid for all companies applying Citigroup's attitude. The momentum will be picking up even more, the vicious circle just has started.

copyright Thomas Ramseyer