ANOTHER bailout!
 

Yep, the feds are now handing $300,000,000,000 of your money to Citigroup for them to continue making lousy investments and decisions.

How long do we expect they can really keep this up?

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http://money.cnn.com/2008/11/23/news/companies/citigroup/index.htm?postversion=2008112400

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Citi dodges bullet
Government will guarantee losses on more than $300 billion in troubled assets and make a fresh $20 billion injection.

NEW YORK (CNNMoney.com) -- The U.S. government on Sunday announced a massive rescue package for Citigroup - the latest move to steady the banking giant, whose shares have plunged in the past week.

Citigroup shares rose 56% in premarket trading Monday.

The plan has two key features:

First, the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) will backstop some losses against more than $300 billion in troubled assets.

Second, the Treasury will make a fresh $20 billion investment in the bank. The government has already injected $25 billion into Citigroup as part of the $700 billion bailout passed by Congress in October.

In return for the latest intervention, the government will receive an additional batch of preferred shares - $20 billion for its direct investment and $7 billion as compensation for the loan guarantees. Citigroup will pay an 8% dividend rate on those shares.

In addition, the government will get warrants, or the right to purchase $2.7 billion worth Citigroup shares in the future.

The government will impose restrictions as well. Citigroup will be prohibited from paying out a dividend of more than a penny per share for the next three years and will face limits on executive compensation.

Plus, Citigroup will be expected to adjust mortgages for troubled borrowers, using procedures similar to those the FDIC implemented at IndyMac, which it took over last summer.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," Treasury, Federal Reserve and the FDIC said in a joint statement.

Under the terms of the Citigroup rescue package, the bank would be on the hook for the first $29 billion in losses on the covered assets, which includes mostly loans backed by residential and commercial mortgages. It would cover 10% of losses above that amount, with the government shouldering the rest.

Despite the massive rescue effort, regulators did not push for a management change at Citigroup. In recent days, there had been speculation that Citigroup CEO Vikram Pandit could step down. There had also been talk that the company was considering replacing Chairman Sir Win Bischoff, although the company denied such reports.

Citigroup has been one of the hardest hit financial firms since the mortgage market first started to unravel in the fall of 2007. Over the past four quarters, the company has recorded close to $21 billion in losses.

Investors seemed encouraged by news of the Sunday night rescue. Major European markets jumped at the open, with Citi shares climbing 35% in Frankfurt. U.S. futures were pointing to a higher open Monday.
A scary week

Federal Reserve Chairman Ben Bernanke and Timothy Geithner, president of the New York Fed, were both involved in the weekend talks over Citigroup's fate, according to government officials. Geithner is expected to be nominated to be Treasury Secretary by President-elect Barack Obama.

There had been concerns that letting another major financial institution fail would have disastrous consequences for both the U.S. economy as well as the global financial system. The bank had more than $2 trillion in assets as of the end of the third quarter and has operations in more than 100 countries.

Last week, fears about Citigroup's fate rattled equity markets around the globe and sent shares of the 196-year-old firm plummeting to levels not seen in over a decade.

Citigroup shares lost close to two-thirds of their value for the week, even as the company announced plans to layoff more than 50,000 workers and as its largest individual shareholder upped his stake.

By the close of trading on Friday, Citigroup (C, Fortune 500) shares had dipped below $4 a share, and were down 87% for the year.

The most recent slide in Citigroup stock comes on the heels of news earlier this month that the Treasury Department was abandoning its initial rescue plan to buy troubled assets from banks - Citigroup had been seen as a major beneficiary of that strategy.

Instead, as part of the $700 billion bailout package that was signed into law in early October, Treasury has focused on making direct investments in banks. In exchange for equity stakes, the agency has injected $25 billion into Citigroup and an additional $100 billion into eight other major U.S. financial institutions.

Despite the recent events, many industry experts had stressed that Citigroup is relatively healthy. Two veteran banking analysts - Mike Mayo of Deutsche Bank and Ladenburg Thalman's Richard Bove - both advised clients last week that Citigroup could survive substantial loan losses.

I expect to have a definitive answer in four years.

At least I finally know someone this bailout money is going to help. He works in a local Smith Barney office (admin type not stock broker) which is owned by Citigroup. And figured he was going to be packing his boxes today and be out of a job. Still sucks to see all this money being thrown around with no means to have it paid back.

Don't forget too that Citi is getting TARP money as well.

It is my opinion that the Government has to do this. I don't think many but a handful of people want to see the world where these banks fail. What I wish we would learn going forward (that I don't expect to happen) is that if you are too big to fail, you are too big.

I am sure those sneaky bankers are already working on a new unregulated product, like credit default swaps, that they can blow way out of proportion and set up the next round of banking stress in 10 - 20 years.

Where does the line start for my bailout? Surely that's next, everyone else has gotten their piece.:rolleyes:

I've heard the Colleges are lining up next....

Older guys may remember one of Ronald Reagan's themes was 'Government should not be in the business of picking winners and loser's. Wow, how far have we strayed from that concept?

Yep, colleges and universities are next.

It's the government "privatize profits, socialize risk" policy in action again. The colleges and universities were doing great during the stock market rise, they had their endowments invested, sometimes in hedge funds, and were banking big money.

Of course, when they were raking in $$$ hand over fist, that was all theirs, and they were brilliant.

But when a LOSS occurs, of course our government needs to step in with taxpayer money.

Good thing our government has big printing presses.

Yep, reward failure. We are all winners, everyone gets a trophy..

Do I still have to pay off my Citi credit card?

BTW - they just raised the interest rate - it now STARTS at 20%. Anything over 18% used to be illegal in many states.

I looked at some studies of past financial crises - how much money governments spent to stabilize and rebuild from those crises. I forget the numbers, but as a % of US GDP, $700BN is much less than is typically spent.

In other words - expect the govt to spend a lot more money to support the financial system and the economy, before we turn the corner. At least a couple trillion $.

Is it money well-spent? Well, we saw what damage the Lehman collapse did to the credit markets, and we've now seen what damage the credit markets are doing to the real economy. C is many times larger than Lehman, so you can probably guess at the damage if C collapses. We're talking that worlds' largest bank, by assets (this might be outdated info, but anyway it is damn big).

+$700,000,000,000

We've put all of our economic "eggs" in a few, very large baskets.

Oh, by the way, the deal is actually govt injects $20BN capital into C, C issues govt preferred stock and warrants, govt guarantees $300BN of C assets (C takes first $30BN of loss and 10% of subsequent, govt takes 90% of subsequent), govt controls C's executive compensation.

Time for some TR-style Standard Oil breakups.

The market is hurting from the lack of competition.

Oh, and these stupid mergers need to stop being approved too.

This is a case where the right hand doesn't know what the left hand is doing. Billions are being handed out and there is NO end in sight.

Sweet. 'Cause knowing my luck, I'm at the end of the handout line. Keep it comin' baby. I want to make sure I get my fair share, too.

So is this fiscal version of "the stranger"?

If the government would not have bailed out Bear Stearns back in March, all the "house-of-cards" banks and brokerage firms would have toppled.

The government would have had to pay a few trillion in FDIC insurance. (People with non-FDIC funds would have lost chunks of money. The FDIC payouts would have created severe inflation.)

It would have been a horrible summer.

BUT, if the government had let all the "bad actors" in the economy fail when the market was ready to expel them (in March, with Bear's collapse), we would now be beginning to enter a real recovery.

Instead, the government has keep (and with the Citi bailout, is "keeping") all the "zombie" financial companies "alive."

The economy needs to "vomit" the poison (the bad debt and bankrupt businesses) out of the system in order to have a recovery. The government is keeping the poison in the economy creating a long-term debilitating situation that will take decades to recover from.

The government's actions is driving us into another Great Depression.

Banks have slowed their production of massive amounts of new cash (new loans, derivatives) and now our Govt is looking to supplement those "new cash" shortfalls. (note the recent strengthening of the dollar ...the deflation.) The problem is, where to infuse it all. Can they push new money into the system fast enough to stave off bigger deflation?
Yep, we are now rewarding the least responsible.

Let's suppose govt had let BSC fail, and then completely stood aside and provided no support to rest of financial system - banks, money markets, brokers, non-financial companies, etc. Suppose other govts had done the same.

Then most likely LEH MER GS MS would have failed too, also numerous commercial banks including C. Similar results globally - Barclays, RBS, UBS, CS, many German banks, etc. Essentially a near-global collapse of banking system, triggering appx $4.2 trillion of FDIC guarantee payments, while another $2.6 trillion of uninsured deposits would be lost (end 2007 data).

Most money market funds would have collapsed, so that's $4 trillion or so of investors' money gone (early 2008 data).

Equities would have collapsed, of course. More than they have.

Credit to consumer and businesses would have shut down, full-stop. You can see how much damage a tightening of lending standards is doing to the economy right now, imagine the damage from a sudden -70% to -90% decline in lending?

Global trade, state/local govts, other areas of economy would have been slammed.

And the Federal govt's own ability to fund its operations - maybe even to pay the FDIC guarantees - would have been in danger. Since China, Japan, and other buyers of treasuries wouldn't be happy that the US govt decided to fiddle while America burns.

Under your scenario, the Second Great Depression would have started in spring 2008.

I think it actually worse than that, I think we are trying to convince ourselves and others that some or all of these incompetents are winners and not losers. Some will fail no matter how much cash you throw at them!

And would be ending at the end of 2008 as all the "bad actors" would have been wiped out completely.

With the current situation the "bad actors" and "zombie businesses" are being kept afloat at the expense of the "good actors" and solvent businesses.

The government is destroying the healthy in the economy in order to save the sick and dead and especially the corrupt.

Not allowing failed businesses -- and especially, not allowing the failed financial system to collapse -- is creating another Great Depression.

"Pretending" it's not there, doesn't mean it's gone away.

The weakness in your thinking is that "good actors" would have been wiped out too. MSFT a company with not 1 cent of debt could not survive without customers. No-one would survive it. If you think they would, you don't understand how intertwined the financial services business' are on one another, and how dependant all business' are on the financial services industry. You could not have stopped the dominos from toppling over. The collapse you keep on insisting on would have resulted in ZERO, which isn't good even if it happened in '08.

On principal everyone agrees with the idea that those who took the risk should pay for it, but when the cost of making them pay for it takes everything with them all the sudden any ration person doesn't want to live on principal alone.

Your talk of collapsing the entire financial system is just chest thumping talk. If you collapse the system what would you replace it with, and how are you prepared to handle that world? Can you survive without food, without fuel, without ammunition, without money, or without medical attention? And if you can survive without all that, can you defend yourself against 1000's of people who will kill you for what you have?

If you have gold and think you are safe because of that I have some news for you. It is a soft shiny metal that is not good for much of anything. It is only your belief that it is worth something that makes it so, just the same as the paper money in your pocket that you loath so much. If you only have a piece of paper that says you have gold then your no better off than any fool holding Lehman brothers stock. In your world whether you want to admit it or not possesion becomes 10/10ths of the law.

I'm sorry but even if we are heading into a great depression it is shorter and shallower than what your peddling.

"And would be ending at the end of 2008". Did the Great Depression last less than 1 year? No, it did not. It lasted at least 4 years (from 1929 to the trough in employment and GDP in 1934). Some claim it lasted until WW2 - I'd agree many of its effects did.

This is even though the Hoover Administration did something like what you advocate. It did relatively little to support the financial system and economy.

US Plans $800 Billion to Ease Lending Crisis

This is an excellent article and worth a look. The tables and graphs are quite good.

Wow!!!:eek:

Does make me reconsider my deflation scenario.

Trying to understand your thinking is difficult.

The fact that you can possibly think that all economic activity would come to a complete and total halt tells me that you have an extremely limited understanding of the economy -- and productive people -- all around you.

I'll speculate that you're one of those "idiots" (like Paulson or Bernanke) who have absolutely no understanding of the idea of people actually living within their means.

I'm guessing that you only understand the concept of "borrow and spend" -- and subsequently think that a "freeze" in the credit markets will somehow result in "all" economic activity stopping.

Well I have news for you, there are literally millions of Americans who do not live with a "borrow and spend" mentality. Millions in this country live within their means; they save and invest before they spend money.

Without the bailouts, the irresponsible lifestyles of many (I suspect you are in that crowd) who "consume before they have produced" would have had to come to a screeching halt.

For the millions who live within their means, things would certainly change as the economy shifted (because the "borrow and spend" crowd would no longer be significant actors in the economy), but generally, those who live by "producing before they consume," would do OK.

The government's recent actions boil down to nothing more than irresponsible people being bailed out at the expense of the responsible (with the government effectively "stealing" the savings of the responsible through inflation of the money supply to pay for the bailouts.)

Taking from the productive to give to the nonproductive is not the way to bring about any economic recovery.

The government's actions is only making things worse. The depression that is coming will be much worse than it would have been if the government would have just stepped aside and let the bankrupt businesses (and people) fail. A lot more of the healthy businesses (and productive people) will now fail because they have to pay to keep the losers "propped up" artificially.