Is the Federal Reserve providing a basis of stabilization? Alternative title: Can Citigroup make it?

US Federal Reserve assets

Maybe it's the scent of good news in the air, but I am thinking today about the institutional basis of a financial stabilization. Or let me put it this way: I wonder what kinds of institutions it will take to restore a steady flow of credit to Americans and American organizations. So, anyway, did I say good news? Here's some, I think: Citigroup stock value is up somewhere around 20 percent. More specifically, the bank is claiming to be profitable again:

Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Citigroup has logged five quarters of losses totaling more than $37.5 billion since it posted a $2.1 billion profit in the third quarter of 2007. Once the world’s biggest bank by market value, it fell below $1 in New York trading last week for the first time as investors lost confidence that the shares can recover after losses and a government rescue.

“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said.

Can Citigroup make it? On its own, I would say no: my sense is Citi has destroyed its social capital, its credibility. I mean, should we even consider trusting the CEO's earnings statements? It's hard for thinking minds to believe and have faith in Citigroup.

But maybe Citigroup can survive with the help of others. As the above chart lays out, the American government is now the direct lender of first resort to Wall Street -- as well as a Citigroup shareholder. This fact will matter in the coming months as the government could advance some much-needed credit-worthiness to Wall Street, most of all, Citi. I can envision a scenario in which the expansion of the Fed's balance sheet proves to be the basis of Wall Street's survival -- lending to these troubled banks not just credit, but credibility as socially beneficial capitalist institutions with solid long-term plans. So yes, I think Citigroup could survive. The US government got in the game and in doing so, I think it could ultimately restore the credit-worthiness of our private organizations.