Citi gets a bailout
There are a lot of parallels between the deal unveiled overnight to restore confidence in Citigroup and the terms of the FDIC-arranged merger with Wachovia from September that never went through. A big pool of assets (now $306 billion, then $312 billion) is set aside, Citi agrees to take the hit on the first few billion (now $29 billion, then $42 billion) in losses, and the government takes most or all (now 90%, then 100%) of the rest. In exchange, the government gets a stake in Citi (now $7 billion in preferred stock, then $12 billion).
The difference is that all those guarantees before were supposedly to protect against bad Wachovia loans, whereas now it's Citi's assets that need insuring. But some have been speculating for a while that Citi-Wachovia was actually intended as a stealth bailout of Citi. Now we're getting a non-stealth version.
Now I'm all in favor of less stealth and more transparency. I don't know about all this preferred stock. Citi's market cap as of the close Friday was $20.5 billion. As part of this new deal the feds injected another $20 billion in capital into Citi (on top of the $25 billion already put in as part of the first round of TARP/BARF injections) in exchange for yet more preferred shares. Shouldn't we taxpayers just own the whole company by now?
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1
Okay, Justin. Here is your title for your next dead-tree edition. You can thank me later.
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"What Isn't Too Big to Fail?"
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We're giving huge amounts of money to companies (and I'm assuming GM nd Chrysler are in the mix as well) that are laying off 50,000 to 100,000 workers. To me, this seems like an inefficient use of capital. Why not give that money to successful companies that are creating jobs already?
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I have no empirical evidence but it would appear that it is marginally easier to assist existing successful companies create new jobs than it for the government to save the jobs of those persons with failing companies. -
2
One point: Citi felt screwed by TARP, because it allowed Wells to come in and get Wachovia via tax subsidies. Then, when Paulson declared TARP wouldn't try and loosen up this toxic asset calcification, that screwed Citi as well.
Maybe Paulson feels he owes it to them.
And, yes, we should own the whole company. It was called the Swedish Plan, and it would have saved us a lot of grief. Just my opinion,and I'm not Swedish.
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3
Where is the plan for Citibank to return to profitability? If the big 3 have too many dealers - does Citibank have too many branches? If the Big 3 have to reduce the brands from 8 down to 2 or 3, doesn't Citibank have to shed some of its businesses? Why do we just have to keep giving banks money without making them figure out what they have to become in the future? Most of my money is at Citibank so I can assure you that I know very well how painful it would be for Citibank to go under. But, Citibank really must transition into becoming something else if it will ever be more than just a zombified shell of a bank.
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So, if we really have to keep giving all our money to banks to keep them going, how does this all end? -
4
Here is a very interesting idea that I at one time had written off:
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http://www.huffingtonpost.com/david-paul/time-to-change-the-rules_b_145907.html
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"With the implementation of these two steps--changes in the mark-to-market rules and removing the collateralization provisions from existing derivatives contracts--the Treasury can immediately reduce the pressure on Citibank and on other financial institutions. Then they can focus on the real job of recapitalizing the banking system, and perhaps the banks will get back to the business of lending." -
5
We still seem to be rewarding bad behavior (and it will also happen in the auto industry). How about this: everyone who created or bought assets that have lost more than the S&P500 has fallen is gone, and banned for life from the regulated financial industry?
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6
Citi gets a bailout, the fate of the Big 3 is more or less doomed (albeit apparently still on the balance).
Citi's good fortune invigorates the stock market; Dow raises its index, pulling up global markets. But will this last?
The President-elect promises 2.5 million jobs in two years, good news except the number seems small. In two years, some 3 - 4 million first-time employment seekers will emerge, and millions more retrenched workers will compete for re-employment. So, will the problem be solved or promise fulfilled?
(Tan Boon Tee) -
7
PANDIT THE BAILOUT NUT
(I'm a Nut, Leroy Pullins)
WilliamBanzai7Sing along link: http://www.youtube.com/watch?v=YqsauoDmgDo
Beedle-dee-bah, beedle-dee-bah, beedle-dee-ree-pa-dom...
[Chorus]
I'm a nut, I'm a bailout nut
My bank won't ever go bust, whoop-whoop-whoop-whoop
The head on my shoulders is sorta loose
And I ain't got the sense to save a loan loss goose
Lord, I am crazy, ...I'm Pandit the bailout nutAre your shares under water, if you're sellin when it rains?
Is it shorter to Bahrain, than it is by a plane?
Between myself and I, I wonder who's the dumber
Is it hotter in Mumbai, than it is in the summer?[Chorus]
I drove my Cadillac to Wall Street to satisfy my lust
Wheelin', dealin', left ol' Wall Street on a Greyhound bus
I shouldn't have set the markets on fire while I was there
But remember only forest fires prevent Bears[Chorus]
The subprime crash will be over, when I begin to fight
If it took a dime to go 'round the world
I'd be on the next flight
I don't mind to take the FEDs out
If they don't mind to go Dutch
Makes me feel like a Billion bailout dollars
And I bet CITI ain't worth half that much[Chorus]
Oh, crazy man! I'm a Nut!
Oh, Lordy, Lordy Lordy, Lordy
I'm crazy, I'm Pandit the Bailout Nut!
- foxjust @MichaelWolffNYC Come on, it's the 'Burn Rate' of post-traumatic stress disorder thrillers! - 2 hours ago
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