Robert Reich blog: Citigroup Scores

[flpoljunkie]

Sunday, November 23, 2008
Citigroup Scores

If you had any doubt at all about the primacy of Wall Street over Main Street; the utter lack of transparency behind the biggest government giveaway in history to financial executives, and their shareholders, directors, and creditors; and the intimate connections the lie between Administrations -- both Republican and Democratic -- and the heavyweights on Wall Street, your doubts should be laid to rest. Today it was decided the government will guarantee more than $300 billion of troubled mortgages and other assets of Citigroup under a federal plan to stabilize the lender after its stock fell 60 percent last week. The company will also will get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program.

This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.

Meanwhile, more than a million workers in the automobile industry, along with six million homeowners in danger of losing their homes, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.

posted by Robert Reich
10:16 PM

[Poiuyt]

1. Link?

[PassingFair]

4. Here:

http://robertreich.blogspot.com/

Nice bookmark to have...

:hi:

[flpoljunkie]

5. Thanks for helping with the missing link. My bad.

[RollWithIt]

2. OK, I'm no math wizard, but we give 20 billion, we get back 27 billion in shares w/ 8% annual...

How is that not good? Just wondering..

[pampango]

3. One could argue that agreeing to be on the hook for the $300 billion in Citi's potentially

bad investments makes it a risky deal. The other side, I think, would argue that the government was going to have to bailout those bad investments if Citi failed, or risk the whole financial system collapsing. If you believe that the government was going to potentially get stuck with that $300 billion anyway and that the guarantees and stock investment make that less likely by shoring up the company, then the investment of the $20 billion could be a good investment. Those are some big IFs however.