CitiGroup Saved…
mammasan
Posts: 5,656
…with our tax dollars. When is this going to end. When is our government going to stop bailing out failed corporations at the expense of America's tax dollars.
http://money.cnn.com/2008/11/23/news/companies/citigroup/index.htm?postversion=2008112400
http://money.cnn.com/2008/11/23/news/companies/citigroup/index.htm?postversion=2008112400
"When one gets in bed with government, one must expect the diseases it spreads." - Ron Paul
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take a look at specifics....while I'm I hate the situation we have gotten ourselves into...this plan looks good for the taxpayer...
from the link
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.
I'm sorry but I don't care what the end result is, government bailout of industries is never favorable. We are traveling down a very slippery slope here and I don't like where it's heading.
well if the end result is a net good thing for the taxpayer, then it should be taken on a case by case basis. this one appears ok. Citi isnt getting free money.
All of these "pluses" are not pluses if Citigroup continues to run inefficiently. They also create a large-scale moral hazard issue. Citi may, and probably will, come back to the government asking for more (see AIG). The people of America will most likely grow tired of these bailouts and demand the government to stop. Lastly, all of this could potentially be a large-scale waste if they eventually fail because all of the "pluses" are attached to a growing and thriving Citibank, which would obviously not be the case if they fail.
On net, I see this as:
#1. An issue because it's socialistic. It's not allowing markets to work.
#2. An issue because it might not help Citi at all, in the long run.
#3. An issue because it may completely waste taxpayer money.
#4. An issue because of the way "others" will perceive this bailout. In other words, more entities will seek them... (see Big Three Auto and citites like Phoenix and Philly). Where is the line drawn? See the definition of moral hazard.
I'm opposed to any government bailout of any private company. Let the bastards fail, fuck them, and let's start this thing over. We're so focused on trying to keep our heads above water now that we're burning all our energy treading water rather than swimming for shore. Things are going to suck, bad, for the foreseeable future. Let stop with the bandaids and have a real discussion about the best long-term response to all this.
That said, I am glad that since we ARE bailing companies out, at least we're doing the things I quoted.
trust me, I'm a free market guy but these are extraordinary times. and they call for extraordinary measures. I certainly hope Citi will change its strategy going forward. here are a few good reasons why to do this from a yahoo article this morning..
http://biz.yahoo.com/ap/081124/citigroup.html
Analysts said a Citigroup failure would have seized up still fragile lending markets and caused untold losses among institutions holding debt and financial products backed by the company.
"It would create chaos," said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $3 billion in equities in Asia. "Simply put, you couldn't borrow or lend for a while. This is a nightmare scenario.
ok great!!! lets discuss the best long term response to all of this.
you first.
First, the key word in your first sentence is "if". This firm is failing, we have no reason to think that the bailout will definitively save them. The only way this 'specific case' will be a "net good thing" for the tax payer is if CitiGroup gets back on it's feet and grows again. That's a big "if" and that's excluding all other externatilities something like this could cause.
Second, CitiGroup--a failing firm, is 'in a way' getting free money. Who the F would lend money to a failing firm? No one! That's the problem. The government is. In a way, they ARE getting money for free.
Like saveup said there are benefits, IF CitiGroup prospers and there is no certainty that it will.
And it's not like it was any secret those securities were bad news. Since the beginning, Warren Buffet had been calling them "toxic." That's why Berkshire Hathaway is still going strong.
I remember some economic analyst saying that any inexperienced business student could've calculated the actual risks of those securities. Yet, millionaire CEO's refused to see it. It's inexcusable, and keeping these companies afloat is just wrong any way you look at it.
http://forums.pearljam.com/showthread.php?t=272825
We like her paycheck, it comes in handy....
I'm guessing Citi will have to sell off parts of the company soon...
ok well we are dealing in unknowns. we dont know IF this will work. but I'm going to give them the benefit of the doubt that this can be turned around. part of the terms of the deal is to revise mortagage rates so people can pay them. ok good, they wont have to write off all that bad debt. they are not allowed to pay a diviend for 3 years. good billions more off the balance sheet.
like I said, take the specifics of this deal. they arent getting free money. there are restrictions and a plan that needs to be followed. the government didnt write a check for 300 billion and say good luck. (much like the car companieswere hoping for)
Trust me, I'm also a free-market guy and I know these are extraordinary times.
The problem is MBSs. That's the problem. It's not CDSs/CDOs. In other words, these "analysts" are full of shit. They don't want Citi to fail because "they" or "their firms" may be attached to them via CDSs or CDOs. Guess what, that's a risk they took... they shouldn't be bailed out after saying they'd insure that. Alternatively, they don't want them to fail because they overvalue the CDS portion of the problem. Their nightmare scenario is BS IMHO.
Would there be problems if CitiBank failed? Yes. Would it be a nightmare scenario? No. Could people still obtain financing? Yes. Who would be really hit by a failure? The companies that "insured" that they wouldn't fail.... that's who. They shouldn't have done that. Government bailing them out creates a moral hazard issue for all financial insurance. That's not smart.
its not that simple. another bank just wont come along. Citi is a global company with trillions on its balance sheet. and for the record, BRK is not immune to this mess.
http://www.huffingtonpost.com/2008/11/06/warren-buffetts-berkshire_n_141799.html
Warren Buffett's Berkshire Hathaway is expected to report a decline in quarterly operating earnings for the third quarter, its fifth consecutive year-over-year quarterly drop.
good points.
I just dont know. I think it would be a nightmare scenario. and I dont think people or businesses would be able to get financing for a very long time.
But Citibank is a Rockefeller institution.
Doesn't that make a difference?
:rolleyes:
If I opened it now would you not understand?
http://www.economist.com/finance/displayStory.cfm?story_id=12670165&source=features_box_main
F. William Engdahl
Global Research
November 24, 2008
On Friday November 21, the world came within a hair’s breadth of the most colossal financial collapse in history according to bankers on the inside of events with whom we have contact. The trigger was the bank which only two years ago was America’s largest, Citigroup. The size of the US Government de facto nationalization of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be ‘too big to fail.’
Paulson demanded, and got from a labile US Congress, Democrat as well as Republican, sole discretion over how and where he can invest the $700 billion, to date with no effective oversight. It amounts to the Treasury Secretary in effect ‘spitting into the wind’ in terms of resolving the fundamental crisis.
The clumsy way in which US Treasury Secretary Henry Paulson, himself not a banker but a Wall Street ‘investment banker’, whose experience has been in the quite different world of buying and selling stocks or bonds or underwriting and selling same, has handled the unfolding crisis has been worse than incompetent. It has made a grave situation into a globally alarming one.
‘Spitting into the wind’
A case in point is the secretive manner in which Paulson has used the $700 billion in taxpayer funds voted him by a labile Congress in September. Early on, Paulson put $125 billion in the nine largest banks, including $10 billion for his old firm, Goldman Sachs. However, if we compare the value of the equity share that $125 billion bought with the market price of those banks’ stock, US taxpayers have paid $125 billion for bank stock that a private investor could have bought for $62.5 billion, according to a detailed analysis from Ron W. Bloom, economist with the US United Steelworkers union, whose members as well as pension fund face devastating losses were GM to fail.
That means half of the public’s money was a gift to Paulson’s Wall Street cronies. Now, only weeks later, the Treasury is forced to intervene to de facto nationalize Citigroup. It won’t be the last.
Paulson demanded, and got from a labile US Congress, Democrat as well as Republican, sole discretion over how and where he can invest the $700 billion, to date with no effective oversight. It amounts to the Treasury Secretary in effect ‘spitting into the wind’ in terms of resolving the fundamental crisis.
It should be clear to any serious analyst by now that the September decision by Paulson to defer to rigid financial ideology and let the fourth largest US investment bank, Lehman Brothers fail, was the proximate trigger for the present global crisis. Lehman Bros.’ surprise collapse triggered the current global crisis of confidence. It was simply not clear to the rest of the banking world which US financial institution bank might be saved and which not, after the Government had earlier saved the far smaller Bear Stearns, while letting the larger, far more strategic Lehman Bros. fail.
Some Citigroup details
The most alarming aspect of the crisis is the fact that we are in an inter-regnum period when the next President has been elected but cannot act on the situation until after January 20, 2009 when he is sworn in.
Consider the details of the latest Citigroup government de facto nationalization (for ideological reasons Paulson and the Bush Administration hysterically avoid admitting they are in the process of nationalizing key banks). Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got some $150 billion in US taxpayer funds in the past two months. Ironically, only eight weeks before, the Government had designated Citigroup to take over the failing Wachovia Bank. Normally authorities have an ailing bank absorbed by a stronger one. In this instance the opposite seems to have been the case. Now it is clear that the Citigroup was in deeper trouble than Wachovia. In a matter of hours in the week before the US Government nationalization was announced, the stock value of Citibank plunged to $3.77 in New York, giving the company a market value of about $21 billion. The market value of Citigroup stock in December 2006 had been $247 billion. Two days before the bank nationalization the CEO, Vikram Pandit had announced a huge 52,000 job slashing plan. It did nothing to stop the slide.
The scale of the hidden losses of perhaps the twenty largest US banks is so enormous that if not before, the first Presidential decree of President Barack Obama will likely have to be declaration of a US ‘Bank Holiday’ and the full nationalization of the major banks, taking on the toxic assets and losses until the economy can again function with credit flowing to industry once more.
Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses. After that, remaining losses will be split between Citigroup and the government, with the bank absorbing 10% and the government absorbing 90%. The US Treasury Department will use its $700 billion TARP or Troubled Asset Recovery Program bailout fund, to assume up to $5 billion of losses. If necessary, the Government’s Federal Deposit Insurance Corporation (FDIC) will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses. The measures are without precedent in US financial history. It’s by no means certain they will salvage the dollar system.
The situation is so intertwined, with six US major banks holding the vast bulk of worldwide financial derivatives exposure, that the failure of a single major US financial institution could result in losses to the OTC derivatives market of $300-$400 billion, a new IMF working paper finds. What’s more, since such a failure would likely cause cascading failures of other institutions. Total global financial system losses could exceed another $1,500 billion according to an IMF study by Singh and Segoviano.
The madness over a Detroit GM rescue deal
The health of Citigroup is not the only gripping crisis that must be dealt with. At this point, political and ideological bickering in the US Congress has so far prevented a simple emergency $25 billion loan extension to General Motors and other of the US Big Three automakers—Ford and Chrysler. The absurd spectacle of US Congressmen attacking the chairmen of the Big Three for flying to the emergency Congressional hearings on a rescue loan in their private company jets while largely ignoring the issue of consequences to the economy of a GM failure underscores the utter lack of touch with reality that has overwhelmed Washington in recent years.
For GM to go into bankruptcy risks a disaster of colossal proportions. Although Lehman Bros., the biggest bankruptcy in US history, appears to have had an orderly settlement of its credit defaults swaps, the disruption occurred before-hand, as protection writers had to post additional collateral prior to settlement. That was a major factor in the dramatic global market selloff in October. GM is bigger by far, meaning bigger collateral damage, and this would take place when the financial system is even weaker than when Lehman failed.
In addition, a second, and potentially far more damaging issue, has been largely ignored. The advocates of letting GM go bankrupt argue that it can go into Chapter 11 just like other big companies that get themselves in trouble. That may not happen however, and a Chapter 7 or liquidation of GM that would then result would be a tectonic event.
The problem is that under Chapter 11 US law, it takes time for the company to get the protection of a bankruptcy court. Until that time, which may be weeks or months, the company would need urgently ‘bridge financing’ to continue operating. This is known as ‘Debtor-in-Possession or DIP financing. DIP is essential for most Chapter 11 bankruptcies, as it takes time to get the plan of reorganization approved by creditors and the courts. Most companies, like GM today, go to bankruptcy court when they are at the end of their liquidity.
DIP is specifically for companies in, or on the verge of bankruptcy, and the debt is generally senior to other outstanding creditor claims. So it is actually very low risk, as the amount spent is usually not large, relatively speaking. But DIP lending is being severely curtailed right now, just when it is most needed, as healthier banks drastically cut loans in the severe credit crunch situation.
Without access to DIP bridge financing, GM would be forced into a partial, or even a full liquidation. The ramifications are horrendous. Aside from loss of 100,000 jobs at GM itself, GM is critical to keep many US auto suppliers in business. If GM failed soon most, possibly even all of the US and even foreign auto suppliers will go under. Those parts suppliers are important to other auto makers. Many foreign car factories would be forced to close due to loss of suppliers. Some analysts put 2009 job losses from a GM failure as high as 2.5 million jobs due to the follow-on effects. If the impact of that 2.5 million job loss is seen in terms of the overall losses to the economy of non-auto jobs such as services, home foreclosures caused and such, some estimate total impact would be more than 15 million jobs.
So far in the face of this staggering prospect, the members of the US Congress have chosen to focus on the fact the GM chief, Rick Wagoner, flew in his private company jet to Washington. The Congressional charade conjures up the image of Nero playing his fiddle as Rome goes up in flames. It should not be surprising that at the recent EU-Asian Summit in Beijing, Chinese officials mooted the idea of trading between the EU and Asian nations such as China in Euro, Renminbi, Yen or other national currencies other than the dollar. The Citigroup bailout and GM debacle has confirmed the death of the post-1944 Bretton Woods Dollar System.
The real truth behind Citigroup bailout
What neither Paulson nor anyone in Washington is willing to reveal is the real truth behind the Citigroup bailout. By his and the Republican Bush Administration’s adamant earlier refusal to take an initial resolute action to immediately nationalize the nine or so largest troubled banks, he has created the present debacle. By refusing on ideological grounds to instead reorganize the banks’ assets into some form of ‘good bank’ and ‘bad bank,’ similar to what the Government of Sweden did with what it called Securum, during its banking crisis in the early 1990’s, Paulson and company have created a global financial structure on the brink.
A Securum or similar temporary nationalization would have allowed the healthy banks to continue lending to the real economy so the economy could continue operating, while the State merely sat on the undervalued real estate assets of the Swedish banks for some months until the recovering economy made the assets again marketable to the private sector. Instead, Paulson and his ‘crony capitalists’ in Washington have turned a bad situation into a globally catastrophic one.
His apparent realization of the error of his initial refusal to nationalize came too late. When Paulson reversed policy on September 19 and presented the nine largest banks with an ultimatum to accept partial Government equity ownership, abandoning his original bizarre plan to merely buy up the toxic waste asset-backed securities of the banks with his $700 billion TARP taxpayer money, he never revealed why.
Under the original Paulson Plan, as Dimitri B. Papadimitriou and L. Randall Wray of the Jerome Levy Institute at Bard College in New York point out, Paulson sought to create a situation in which the US ‘Treasury would become an owner of troubled financial institutions in exchange for a capital injection—but without exercising any ownership rights, such as replacing the management that created the mess. The bailout would be used as an opportunity to consolidate control of the nation’s financial system in the hands of a few large (Wall Street) banks, with government funds subsidizing purchases of troubled banks by “healthy” ones.’
Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.
The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today — with a black hole of negative net worth that would swallow Paulson’s entire $700 billion in one gulp.’
That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.
That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the ‘troubled’ assets.’ That is what the latest nationalization of Citigroup is about.
It is only the beginning. The 2009 year will be one of titanic shocks and changes to the global order of a scale perhaps not experienced in the past five centuries. This is why we should speak of the end of the American Century and its Dollar System.
How destructive that process will be to the citizens of the United States who are the prime victims of Paulson’s crony capitalists, as well as to the rest of the world depends now on the urgency and resoluteness with which heads of national Governments in Germany, the EU, China, Russia and the rest of the non-US world react. It is no time for ideological sentimentality and nostalgia of the postwar old order. That collapsed this past September along with Lehman Brothers and the Republican Presidency. Waiting for a ‘miracle’ from an Obama Presidency is no longer an option for the rest of the world.
If I opened it now would you not understand?
Its actually NOT.
Its from global research.
Its called a RSS feed.
:cool:
and its not like the MSM is any more credible.
Puhlease.
The Economist, like CNBC, may make some accurate points about some things, but (like CNBC) it also just as often serves as a mouthpiece for certain vested interests.
In the case of The Economist, besides being half owned by Financial Times Ltd (The Financial Times of London being THE establishment paper of record), it is owned in large part by The Rothschild family, and they have always had family members on the board.
From 1972 until 1989 Sir Evelyn de Rothschild was the chairman of The Economist Group.
Lynn Forester de Rothschild (Lady De Rothschild) -- a primary fundraiser for Hillary Clinton, wife of the above Sir Evelyn De Rothschild -- is the current CEO of E.L. Rothschild, the holding company which owns much of "The Economist".
She also serves as a director of The Economist Newspaper Limited, in the capacity of member of the audit committee.
So now YOU are providing me sources of information related to a Rockefeller bank, sourced to a Rothschild company.
Both families being largely in cahoots to fuck over the common man throughout history.
So actual content of either of our articles be damned,
what gives you the right to poke fun at my source above yours?
:cool:
If I opened it now would you not understand?
as long as the evil jews didnt write it.
Do you think it would be worse than October 10th? Check the TED Spread now vs then...
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
yes I do. that spike came from Lehman going down, correct?
Or WAMU.
WaMu didnt collapse, it was purchased. no one bought lehman, it collapsed and lending immediately froze.
Actually WAMU did collapse. It was taken over by the FDIC and then had it's assets sold to JP Morgan Chase.
o true true. but thanks to the FDIC take over, it didnt interrupt lending or effect the TED spread.....at least in comparison to the amount Lehmans collapse did.
Zionism and Judaism are wholly different, and actually diametrically opposed to eachother. The concept of a Jewish state is ananthema to the actual tenents of Judaism, and historicaly was backed by large statist interests (like Great Britain and The United States) along with large quantities of certain private Zionist wealth stemming from superfluously wealthy "Jews".
For you to muddy the water by throwing around the term "evil jews", even in jest, is actually FAR more offensive than anything i have written.
Simply regurgitating history, and iterating the truth with regards to sources, is NOT anti-semitic.
Insinuating that I am, is outright ignorant on your part.
If I opened it now would you not understand?