Geithner's Latest Gift To Citigroup Owners Finally Complete

[girl gone mad]

There's a rumor going around that Obama and Summers are setting Geithner up to fail. Word is he sits alone in his office, he hasn't been given any undersecretaries or a deputy. The big bank rescue announcement was hyped to some extent by Obama beforehand, but Geithner is widely perceived to have flopped. Maybe Geithner's allies are circulating these rumors, or maybe the administration is anticipating the inevitable backlash to deep captured Geithner's ideas and has a plan B (wishful thinking on my part?).

Geithner's Latest Gift To Citigroup Owners Finally Complete
Henry Blodget, http://www.businessinsider.com/geithners-latest-tapayer-gift-to-citigroup-owners-finally-complete-2009-2">Clusterstock

The New York Times says the deal is done. The Wall Street Journal said the deal was done and then printed a correction saying it wasn't done. Whatever. It's done.

And here's the deal:

You, the taxpayer, will be converting your dividend-paying Citigroup preferred stock into non-dividend paying Citigroup common stock. And because Treasury Secretary Tim Geithner seems determined to gift as much of your money as possible to Citigroup stakeholders as possible, you'll be doing this at $5, more than twice Citigroup's closing share price.

If this were a homeowner bailout, it would be equivalent to the government paying you $500,000 for your house when it's only worth $250,000. Of course that's never going to happen. (And, of course, in this case, Citi's house is only worth $2.50 because taxpayers gave Citi massive second and third mortgages. If they hadn't, it would be worth zero.).

The Treasury Secretary will try to make it look as though he got you a great deal because he also gets to fire half of the Citigroup board. But that's just a symbolic concession. Boards don't run companies. And a new board won't stop Citigroup's asset values from plummeting so that the company will soon need even more of your money.

Which brings up another problem with Geithner's plan. It doesn't address Citigroup's asset problem.

(What should Geithner have done? Forced Citi to write down the value of its assets to nuclear-winter levels, and then converted a bunch of Citigroup debt to equity--including the US's preferred stock. Instead, he just gave your money away.

What is Geithner thinking here? He's desperate to avoid taking majority ownership of Citi, in part because Citi's gigantic hairball of a balance sheet will suddenly be put on the US's books. He also doesn't want to send a paroxysm of panic through the bank debt market by notifying bank debt holders that the bonds they own aren't, in fact, as safe as Treasury Bills but pay much higher interest--which is currently the case. So Geithner's capping the US ownership at 40% and keeping bondholders whole.)

http://www.businessinsider.com/geithners-latest-tapayer-gift-to-citigroup-owners-finally-complete-2009-2">More...

[terisan]

1. This seems an action worthy of breakup or United States of America .

Saving Citigroup from the choice of either paying its bills itself or bankrupting, may lead to default of the US.

The only question in a breakup is what to do with the military and nuclear arsenal. I could see a common defense as a role for a federal government, as well as free trade among the states or regions of the united states--if states were mainly sovereign it might be easier to monitor the actions of a federal govt in the area of defense and costs of same.

[ixion]

2. son of a...

:argh:

Ya know, I thought the looting was over when Bush left office. I guess not. I guess they'll just keep looting until there's nothing left.

Again: :argh: :grr:

[FieldsBlank]

3. What's the alternative really?

A Citi bankruptcy would most likely cause a worldwide meltdown.
The counter-party risks are unimaginable.

[ixion]

4. I keep hearing that as a rationale

but, you know, throwing wads of money we don't have at a bank that will fail anyway is not sound financial planning, IMO.

The meltdown comes, no matter what. Why? Because of years of fraud and corporate welfare.

Sorry, I guess I'd rather look at real solutions to the issue, rather than propping up bloated institutions that have screwed themselves by making poor investment choices.

If you think this solves the problem, think again.

How many trillions of dollars do we toss at this problem before we realize that tossing money at it won't solve it?

[notesdev]

5. About that worldwide meltdown

I do believe that ship has already sailed.

All that is happening now is throwing good money after bad and making everybody but a few saved scalps in the financial sector justly unhappy

[wuvuj]

6. Global downturn: In graphics

http://newsvote.bbc.co.uk/2/hi/business/7893317.stm

[truebrit71]

9. Sod it. Let it fail.

It's obvious that this version of capitalism hasn't worked out...

[GoesTo11]

7. Update: the citigroup shares the govt paid $5 for are worth $1.50, not $2.50

[leftofthedial]

8. Summers is even worse than Geithner.

WTF?

The whole economic team is just plain wrong.