Editore"s Note
Tilting at Windmills

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November 24, 2008

THE 'OUTRAGEOUS' CITIGROUP BAILOUT.... Following up on Hilzoy's item from late yesterday, Paul Krugman notes this morning that a Citigroup bailout, under the circumstances, may have been worthwhile, but this bailout is outrageous: "a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more. Amazing how much damage the lame ducks can do in the time remaining."

Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies -- the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. -- will take on any additional losses, though Citigroup could have to share a small portion of additional losses.

The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet. That means taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

In exchange for that protection, Citigroup will give the government warrants to buy shares in the company.

In addition, the Treasury Department also will inject $20 billion of fresh capital into Citigroup.

The mismanaged company is worth $20.5 billion. It's already received $25 billion from the TARP rescue plan, and the Treasury is poised to inject another $20 billion, on top of generous asset guarantees.

Drum and Yglesias seem to be asking all the right questions.

Steve Benen 9:40 AM Permalink | Trackbacks | Comments (33)

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Comments

Curious... was this sort of er... 'deal making' authorized as part of the general 'bailout' package?

Posted by: Buford on November 24, 2008 at 9:46 AM | PERMALINK

Buford, This kind of nonsense was authorized for the first 350 billion. After that Congress gets to take a closer look.

What bothers me is the moral hazard and business model questions. How come we don't have to worry about revised business plans and moral hazard when Hank Paulson's buddies are begging for money, but the story is entirely different if we are talking about Detroit?

Posted by: Ron Byers on November 24, 2008 at 9:58 AM | PERMALINK

"Are" not "is." I added "business model."

Posted by: Ron Byers on November 24, 2008 at 9:59 AM | PERMALINK

So, what happens if Citibank goes bankrupt again? Oh, that's right, "Wall Street will crash". Been there, done that. Seems like we're throwing good money after bad now.

Posted by: Marko on November 24, 2008 at 10:00 AM | PERMALINK

I hope that this puts an end to the ass kissing articles about Paulson doing his very best.

Posted by: steve on November 24, 2008 at 10:01 AM | PERMALINK

Great comment from a Citigrope article over on Metafilter... worth propagating.

"Can we stop referring to derivatives leveraged around collateralized debt leveraged around even more counter-pary obligations as "toxic debt"?

That shit is, and was, play money spun out of the unregulated ether by the smartest players in the room. It is monopoly paper money. The fact that American citizens are being asked to bankroll this funny money, to use their future tax revenues to make it real is being lost in the discussion.

Let's be very clear here:
American taxpayers are being asked to make this funny money real so that various Wall Street players can keep the wealth they created for themselves out of toilet paper. We are investing in millionaires, so that they can remain millionaires."

Posted by: Buford on November 24, 2008 at 10:03 AM | PERMALINK

"Amazing how much damage the lame ducks can do in the time remaining."

Especially when that is their objective. These people came to DC to smash and grab. There's no lame duck period for that.

Posted by: Roddy McCorley on November 24, 2008 at 10:09 AM | PERMALINK

Very few people can understand what's wrong let alone what has to be done to fix it. Paulsen and Co - read the rape, plunder, and pilagers - have ignorance and confusion on their side. By the time Obama takes over the 700 billion will be squandered on the people who created the mess; no one will be held accountable for anything, and the country will be mired in a years-long depression.

Bush/Cheney and Paulsen have to go now. Another eight weeks of this will be catastrophic.

Posted by: rich on November 24, 2008 at 10:22 AM | PERMALINK

Well, Citibank did arrive on bicycles with a very detailed plan, right?

Otherwise, wouldn't congress have treated them with contempt and sent them packing?

Posted by: doubtful on November 24, 2008 at 10:31 AM | PERMALINK

"but this bailout is outrageous: "a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more. Amazing how much damage the lame ducks can do in the time remaining." " This has been the premise of the entire 8 years of the Bush/Cheney administration

Posted by: mljohnston on November 24, 2008 at 10:34 AM | PERMALINK

how about the gov bailing us usa citizens out of our money prombles
give us 100 thousand dollars to jump start our lives again we all need a bail out
after all its our money the gov is spending any way .So maybe they should give it back

Posted by: me on November 24, 2008 at 10:37 AM | PERMALINK

At some point it's going to hit everyone that we keep talking about individual pieces of a big...something. But we'e not talking about the something itself, which is enabling these government idiots to keep shoveling out money that we (taxpayers) are responsible for.

The S&L crisis arrived this same way. The industry got the government to put the taxplayer on the hook, then it did whatever the hell it wanted because it faced no downside risk. What's the downside risk to Citi? Really? Not the shareholders, but the corporation itself?

There isn't one. They're already blowing up, so taking on a bunch of additional debt for future promises backed by the American public is a no-brainer. Which is why the government should not have done this deal.

We (the government) should be making deals that cause real pain and anguish on Wall St. I haven't seen one yet. We (the government) should be talked about with that odd mix of fear and respect that has hung around the necks of all the great robber barons and financial bastards, but that's not the way Wall St. thinks of the government. They think of the government as a sap, because it is a sap.

Posted by: The Phantom on November 24, 2008 at 10:38 AM | PERMALINK

Hold on folks.

This "bail out" frenzy, starting with Bear Sterns, is starting to really smell.

Look back at the year AFTER Elliot Spitzer was sacrificed.

Something is truly fishy.

I ain't one for conspiracies, but it seems like some big players are conspiring to grab taxpayers monies at a rate never seen in history.

It's just too damn much money being doled out at too rapid a clip for me.

What on earth has happened?

Dot-com bubble-------Housing Bubble-----Oil Bubble.

All dem bubbles have burst. Fake wealth now gets REAL tax dollars.

Ain't right.

Posted by: Tom Nicholson on November 24, 2008 at 10:42 AM | PERMALINK

CNN has a banner up on their homepage saying that Bush consulted Obama on the bailout. Last night Bush's press secretary said that Bush himself didn't even know about the deal.

It seems that Bush is in no hurry to leave the White House but he's perfectly ready to make Obama responsible for this mess.

Posted by: Vicki on November 24, 2008 at 10:43 AM | PERMALINK

We have to stop stampeding every time some crooked banker yells "fire!"

Are we actually auditing these financial institutions thoroughly to make sure they aren't just asking for a handout? How could we? The Treasury isn't staffed for such a massive effort. It takes time to conduct a proper audit.

As someone above said, something really stinks around here. I don't doubt that there are trillions of phony Wall Street dollars out there intermingling with and poisoning the "real" money in our financial system - if there is any such thing anymore - but there's something else going on, and it's really big, and we peons are getting the shaft as the corporate moguls and tycoons are fighting over the remains.

I think we're being conned. Nobody knows the extent of the financial crisis, but we're acting out of panic, just splattering money all over the place in order to put the fiery menace out, when we might just be fanning the flames, for all we know about it. This is not the way to deal with a crisis.

Something went really wrong with our system, and the perpetrators are trying to cover it up, and to steal all the money they can before we wake up and realize what happened.

Posted by: hark on November 24, 2008 at 11:03 AM | PERMALINK

Make that "Citicorp"--that is, if you're Bush.

Posted by: you say citigroup, I say citicorp--what does it matter--I'm out of here on November 24, 2008 at 11:13 AM | PERMALINK

We can bail out citibank, which wouldn't EVER help some common person customer, that is in trouble and possibly going to lose their home... But now they want help because they are in the same trouble? I say NO . And NO again !!

Posted by: BILL BAKER on November 24, 2008 at 11:26 AM | PERMALINK

Classic Republican move. Privatize the profits, socialize the costs.

Posted by: thorin-1 on November 24, 2008 at 11:58 AM | PERMALINK

anyone up for a round of "torches and pitchforks"?

Posted by: osama_been_forgotten on November 24, 2008 at 12:26 PM | PERMALINK

Oh, that's right, "Wall Street will crash". Been there, done that. Seems like we're throwing good money after bad now.

. . . no, it's bad money after worse.

Posted by: osama_been_forgotten on November 24, 2008 at 12:49 PM | PERMALINK

Hey I think the government should give Citigroup a bit of thier own medicine...... 7 yrs ago I lost my Property to a third party sale because citigroup would not help me...I tried to refinance even tried forberance and got no reply or any type of communication from them....the government should turn thier back on them as well.

Posted by: Rick on November 24, 2008 at 1:04 PM | PERMALINK

Well, we can't throw money at them without a game plan. That's like kicking the can down the road....B Obama

oops - sorry that only applies to working folks in the auto industry, waiting to lose their jobs. Banks are SO IMPORTANT they don't need to be accountable.

BTW - Are the California legislators taking the train home or riding in the taxpayer sponsored 747?

Posted by: skeptical on November 24, 2008 at 1:14 PM | PERMALINK

"The mismanaged company is worth $20.5 billion."

Uh, no. The market price in the middle of a panic is 20.5 billion. Big difference.

Posted by: Bob M on November 24, 2008 at 1:43 PM | PERMALINK

"DITTO" Detroit is told to suck it up while bankers skip along home with a pat on the head. We need to let Citigroup go bankrupt. Citigroup won't help anyone. Citigroup took my family's home away and didnt give a darn. Citigroup has ALREADY been bailed out 3 times in the past 2 years, (even once by the Saudi's)! How much of this bad debt is debt to foreign investors? How long do we have to keep covering the bad fiscal management (and bad paper) of these MORONS. The max amount of bailout should be limited to a SET percentage of loss. Once that limit is reached the handout stops and either the company sinks or it swims.

Posted by: Jobo irate on November 24, 2008 at 2:28 PM | PERMALINK

Another thing that bugs me about the Citigroup bailout is that it seems aimed more at Wall St. and the markets than it does at the economy as a whole. Again, decisions seem to be being made discretely, rather than as part of a plan.

I'll also go out on a tin-foil limb and say that I'm really fucking tired of the Bush family fluffing the Saudis at every damn opportunity:

http://www.cnbc.com/id/27892719

Everybody remembers that it was Saudis that knocked down the Twin Towers in 9/11, right?

Right?

Right.................?

Posted by: The Phantom on November 24, 2008 at 3:16 PM | PERMALINK

This is almost certainly overly simplistic reasoning, but in order to make Citi's (and the earlier bailout recipient financials) bottom line better, why couldn't it have been done in a way that ALSO made the bottom line of the sub-prime borrowers better?

Why couldn't the government gone in and given the money to the borrowers, who then could have paid down their loans (by way of re-financing them) to a point where they could then manage the payments?

That way, the borrowers would be solvent (not a bad thing), AND the bad loans would have been taken off the hook.

The government is plopping down all this money, and is ANY of it helping out the borrowers? Of course not. But just how does giving Citi all that money make the situation better? Aren't all those loans still outstanding and BAD loans?

I am probably looking at this with blinders, but why can't the cure help BOTH individuals and the financial corporations?

Posted by: SteveGinIL on November 24, 2008 at 4:08 PM | PERMALINK

i cant figure out why all these banks keep on getting bailouts,while working class people sit and wait to see if the government will bailout the automotive companies,without the big three automotive companies around we would be in a big world of hurt,not sure of the figure of income tax that employees of automotive companies pay,but i think its safe to say its well over 25 billion a year.but when the auto industry asks for a little bit back everyone is asking why should we bail them out,but were would the we be without the taxes that employees pay and taxes raised on cars sales.

Posted by: darryl wilker on November 24, 2008 at 4:15 PM | PERMALINK

I know that the BIG 3 didn't help themselves by arriving in their Lear Jets, but their bailout money is going to be a loan @ around 12%. What is Citicorps' payback interest (if any)? AIG was @ 12%, but now they have got it lowered to 5%. Oh by the way, the original 700 billon is now @ 850 billon, due to our Demo House says that Wall Street needs mental health help. When will enough be enough.

Posted by: tim rutledge on November 24, 2008 at 4:38 PM | PERMALINK

I have to put in one extra dig here:

How the HELL did Enron go belly up?

It must have been that Ken Lay wanted to get a face job and end up on some beach in Brazil - WITHOUT his wife.

Nothing else makes sense.

Well, okay, maybe BushCo didn't have all the pieces in place to know how to do this sh** back in 2001.

But, boy, did Enron screw up - they could have had BILLIONS. . . and the little people still would have gotten screwed.

.

Posted by: SteveGinIL on November 24, 2008 at 6:13 PM | PERMALINK

citigroup what is this the govt bailout.My wife walked so now I can not pay my new truck payment.No help from citigroup just pay or let go back.No extensions no lower int.not anything. when will they put anybody in charge with any sence.Im just a working class man tring to make ends meet. the govt bails out citigroup again how about all the hard working americans how about a bailout for us.Give all americans that need a helping a loan at a low APR .How about that kind of bailout

Posted by: Ricky on November 24, 2008 at 7:01 PM | PERMALINK

Feed the giant candy. Don't say that these bailouts all of a sudden happen. They have been squeezing consumers for years. At times when everyone lost there money, here they are investing back into themselves. Hog wash. They want to be great and powerful at the shear expense of the consumer. Take the company and sell it.

Posted by: Dave on November 24, 2008 at 7:42 PM | PERMALINK

I worked for Citi for over 15 years and was laid off recently due to the fact they say they don't have the capital to pay their employees anymore. I find it extremely sad that the government is bailing out a company that really doesn't care one way or the other about their employees and will ax them in order to keep their big paychecks coming for themselves. Bush is a joke and Cheney is probably the most evil man that ever lived. I can only Thank God that we have just a few more weeks of them. I agree that the American Citizens need the bailout not the big corporations. I do feel that the auto industry needs help, but not at the expense of their employees. Government must put a restriction in place that states if they are to give them money to bail them out they must keep their employees on board and not give them the shaft.

Posted by: Alex on November 24, 2008 at 7:55 PM | PERMALINK

Maybe we should all STOP voting for the bastardized versions of the two parties Republicrats and start voting in ANY one else ... heck, any of us would do just as good right? I mean, how could any of us do any worse?

VOTE THIRD PARTIES IN and DEMS AND REPUBS OUT it is the ONLY way to take the power away from them.

Oh yeah, if you think the next pres is about to change the status quo? He is looking at the head of the Fed. Reserve Bank of New York for his Tres. Sect. Say that doesn't stink and I will say my dirty socks smell like roses.

Posted by: mark on November 25, 2008 at 3:16 AM | PERMALINK




 

 

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