Michelle Malkin » Citibail: Another in an endless series of doomed, late-night bailouts; 1 am Eastern update: Citicorp to receive $306 billion fed backing + $20 billion more from Crap Sandwich

Citibail: Another in an endless series of doomed, late-night bailouts; 1 am Eastern update: Citicorp to receive $306 billion fed backing + $20 billion more from Crap Sandwich

By Michelle Malkin • November 23, 2008 10:45 PM

Scroll for updates…Citicorp’s $306 billion + $20 billion bailout agreement reached…Treasury/FDIC/Federal Reserve issue statement…Bottom line: We’re Screwed ‘08!

(Thanks to BT for the photoshop.)

Crap Sandwich 2.0 is morphing again.

We’ve gone from the toxic assets purchase plan to the capital injection plan to the throw-it-all-against-the-wall-and-whatever-the-hell-sticks-sticks non-plan plan. In the latest late-night bailout plot — you smelled it coming, didn’t you — the feds are colluding with Citigroup to engineer another “rescue” that will not work.

Let’s repeat that not-so-bold prediction: It ain’t gonna work.

Unless by “work” you mean opening the floodgates to more and more and more bailouts of businesses that deserve to fail.

The details, such as they are:

U.S. government regulators were nearing approval of a radical plan to stabilize Citigroup on Sunday in which the government would soak up tens of billions of dollars in losses at the struggling bank, according to people briefed on the discussions.

The plan, which emerged after a harrowing week in the financial markets, would mark the government’s third effort in as many months to contain the deepening economic crisis. While the negotiations were in flux on Sunday night, the proposal, if applied to other banks, could set the precedent for other multibillion-dollar financial rescues…

…The plan could herald another shift in the government’s morphing financial rescue. The Treasury Department initially proposed buying troubled assets from banks but then reversed course and began injecting capital directly into financial institutions. Neither plan, however, restored investors’ confidence for long.

“It’s been one announcement after another that has had substance, but not enough teeth,” Charles Geisst, a financial historian and professor at Manhattan College. “By intervening, they are giving the market some heart to temporarily stave off some fear — but you can only push that so much.”

It was unclear on Sunday night exactly how the Citigroup arrangement might work. The government and Citigroup executives were combing through Citigroup’s books and trying to determine the level of losses that it would be willing to bear. Another question is whether any additional government money for Citigroup, which has already received $25 billion under the initial rescue plan, would come from the $700 billion industry bailout that Congress approved in October or from other sources, like the Federal Reserve or the Federal Deposit Insurance Corp.

Regulators were debating various terms of the arrangement on Sunday, including whether the government would receive preferred stock or warrants, which are instruments that give holders the right to buy stock. Preferred stock would be more beneficial to taxpayers because Citigroup would pay dividends on those shares; warrants would be more attractive to Citigroup’s existing shareholders because they would not immediately dilute the value of their investments as much as preferred stock.

Hey, where can the rest of line up to get some “emergency cash:”

Citigroup seeks ‘emergency cash’

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Options being discussed included a government cash injection as well as Citigroup selling some of its business, reported The Sunday Times.

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

He also reiterated that the firm had a robust capital position.

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, “Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days.”

“The only one who comes to mind is the government,” he said, adding that $50bn might be needed.

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability.

It is widely expected that Citigroup will issue a statement on Monday before the US markets open.

Now, more than ever, it is time to roll back the bailout. Call your Senator and tell them to support GOP Sen. Jim Inhofe’s S. 3683:

GOP Sen. Richard Shelby holds the line:

Sen. Richard Shelby, R-Ala., a free-market advocate who opposes government intervention, said he thought any effort to aid Citigroup was a mistake.

“Citi has got to save itself,” Shelby said. “And, can they do it by a merger with somebody else or going to somebody else? I don’t know,” he said on ABC.

***

Hey, here’s another genius idea: A builders’ bailout! Subsidize the propping up of home prices. Subsidize the same behavior that got us into the subprime mess in the first place. Briiiiiilliant:

Struggling U.S. auto makers left Washington empty-handed after weeks of pleading for a handout, but that hasn’t deterred home builders from stepping up to lobby Congress for help.

But any federal assistance would require policy makers to figure out how to stimulate demand for housing — the problem at the root of the global financial meltdown — without artificially propping up home values.

Some economists fear federal intervention to help homeowners may instead encourage more overbuilding.

Duh. Ya think?

The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate.

Congress resisted a similar effort to pass a larger tax credit earlier this year, instead creating a $7,500 credit for new-home purchases that had to be paid back over 15 years, effectively extending an interest-free loan.

Builders are promoting the campaign with full-page newspaper advertisements, but face an uphill battle, with critics suggesting the proposal is too expensive and that it too heavily promotes home purchases rather than addressing loan modifications for delinquent homeowners.

The effort aims to stop the adverse feedback loop gripping the market. The cycle begins when falling home prices prompt some borrowers to default, leading to foreclosures. That further depresses home prices, hitting the banks that hold mortgage-backed securities, causing them to pull back and freeze credit. That in turn causes the economy to slow.

“The basic asset that is underlying all the financial problems that we’re experiencing is highly unstable, and it’s causing an ongoing hemorrhaging in the financial system,” said David Ledford, who oversees housing finance and policy for the National Association of Homebuilders. “It’s starting to snowball.”

Starting to snowball?!?!

***

1am Eastern update: Here we go, folks. The Treasury Dept/FDIC/Federal Reserve have issued their late-night joint statement announcing $306 billion in federal backing for Citicorp plus $20 billion of the Crap Sandwich (that’s on top of the $25 billion bite they’ve already taken):

The following is the text of a statement on Citigroup released jointly by the U.S. Treasury Department, Federal Reserve and Federal Deposit Insurance Corp on Sunday:

The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S.
government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.

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.

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

* We will work to support a healthy resumption of credit flows to households and businesses.
* We will exercise prudent stewardship of taxpayer resources.
* We will carefully circumscribe the involvement of government in the financial sector.
* We will bolster the efforts of financial institutions to attract private capital.

Posted in: Subprime crisis

Regular View

comments (118)

trackbacks (35)

See what others have said

Note from Michelle: This section is for comments from michellemalkin.com's community of registered readers. Please don't assume that I agree with or endorse any particular comment just because I let it stand. A reminder: Anyone who fails to comply with my terms of use may lose his or her posting privilege.

Trackbacks

Trackback URL

Comments

« Older Comments

#555654

On November 24th, 2008 at 12:39 pm, bsmarj said:

Yes, I missed some zeros, Thank you.
Still might be cheaper in the long run.
#555655

On November 24th, 2008 at 12:40 pm, mngirl said:

But Citigroup continues to fund its $20M per year to the NY Mets for naming rights on their new stadium:

“We remain committed to our relationship to the Mets; it is important to us,” Steve Silverman, a spokesman for Citi, said in a telephone interview Friday.

Disgusting, $20M for 20 years = $400M.
#555723

On November 24th, 2008 at 12:59 pm, NJ-Aviator said:

And all the while Banks like this, who acted responsibly, get the shaft…

Evergreen Federal Bank

Everyone should read that article. It epitomizes the frustration with these bailouts.
#555763

On November 24th, 2008 at 1:09 pm, Regulus said:

Now, more than ever, it is time to roll back the bailout. Call your Senator and tell them to support GOP Sen. Jim Inhofe’s S. 3683

Roll back the bailout? Roll back? Please. You’re not even going to slow it down, not to mention reverse it. Michelle, if you haven’t read Don Quixote, may I recommend it to you? At least the episode with the windmill?

The letters “G.” “O.” and “P.” before “Sen. Jim Inhofe” tell you all you need to know about the prospects of S. 3683’s passage in Harry Reid’s Senate. Might as well do a rain dance and tie a Kamikaze hachimake around your forehead for all the good pitching that proposal will do.

Bailout Fever is just that: a fever. And like any fever, it has to run its course until it breaks. And with the donkeys set to gain even more power in a couple of months, there’s no sign that this fever is going to break anytime soon.

I’ve analogized in another thread some time ago about the point before Niagara Falls past which nothing can escape the momentum of the water carrying it over the edge; even a motorboat’s propeller turning at full RPM will simply shear off its shaft against such a force.

That’s where we are when it comes to the accumulated rot in some of our big financial institutions and companies. They’re going down, nothing can stop it, and “bailouts” are just delaying the inevitable.

Unfortunately, even if the Republicans were still in charge of Congress we’d still be going through this bailout exercise in futility. That the donks are running the show only guarantees that a state of denial will preside on Capitol Hill.

We’re going over the edge, folks. No amount of taxpayer-indebted pump-priming is going to stop it now, but the donks don’t want to admit it yet. And that’s why the “bailouts” will continue no matter what people like Michelle and impotent Republican Senators Inhofe and Shelby say.

The only thing left to do is to hang on and hope you survive the fall.
#555769

On November 24th, 2008 at 1:10 pm, Azygos said:

Did you all buy gold yet?

OT but related – any suggestions, my local gun store (if they didn’t sell them all Sat) has a Panther Arms M4 for $1299 or an S&W M4 for $1599. Any reason to choose one over the other?

Wouldn’t know an M4 from an M16. I bought a Serb SKS
#555775

On November 24th, 2008 at 1:12 pm, Weary Citizen said:

On November 24th, 2008 at 12:39 pm, bsmarj said:
Yes, I missed some zeros, Thank you.
Still might be cheaper in the long run

Yep. The end result is the same. Bankruptcy of the US Treasury. It is just a matter of speed. If I got the $1M, I could at least feel I got something for it rather than giving it to a bunch of billionaires whose short term profit maximization strategies destroyed the long term viability of the companies they they were entrusted to run.
#555923

On November 24th, 2008 at 2:23 pm, feebiebabe said:

Speaking of Socialism. Anyone seen the new Statue of Che erected in NYC Central Park?

BUT, they are now saying it’s not of Che, but of a street performer who use to Dress like Che?

Out-standing.
#555930

On November 24th, 2008 at 2:28 pm, Marc said:

My citibank credit card is harassing me for thirteen cents in interest on a credit card bill that I paid in time. And I wonder if I can get a piece of the bailout or a piece of Bill Clinton’s $450,000.00 speaking fee.
#555961

On November 24th, 2008 at 2:46 pm, tamarah180 said:

Ummm, I thought the USA tax Big Banker Bailout Bill was supposed to just help US companies…ah was obviously mistaken:
from Finding Dulcinea:

Background: Recent acquisitions by Gulf SWFs; internal economic developments
The state-run Abu Dhabi Investment Authority bought a $7.5 billion stake in Citibank in a sovereign fund–backed deal last November. At the time, Abu Dhabi and Dubai, the two richest of the UAE’s seven emirates, had an estimated $5 billion to spend per week on financial holdings thanks to oil and gas revenues, according to Edward Morse, the chief energy economist at investment firm Lehman Brothers.

Let ‘em bail their own stupid selves out…g-r-r-r-r!
#555975

On November 24th, 2008 at 2:52 pm, tamarah180 said:

More from Finding Dulcinea:

Citigroup publicly announced the deal, inked over the long Thanksgiving weekend, on Monday, Nov. 26. The ADIA is buying a 4.9 percent stake, making it the largest single shareholder in the New York banking conglomerate.

With the credit crunch showing no sign of letting up, the dollar at a historic low, and fears of a U.S. recession running high, Wall Street investors and concerned politicians welcomed the influx of Middle Eastern money.

Sen. Charles Schumer (D-N.Y.), chairman of the Joint Economic Committee and a senior member of the Senate Banking and Finance Committees, said that the ADIA transaction “will bolster Citigroup’s capital and competitiveness, and thereby help preserve New York’s status as the world’s financial center.”

This sale was the latest in the United Arab Emirates’ worldwide shopping spree. Abu Dhabi and Dubai, the two richest regions of the UAE’s seven-emirate federation, have an estimated $5 billion to spend per week on financial holdings thanks to oil and gas revenues, according to Edward Morse, the chief energy economist at investment firm Lehman Brothers.

Other recent acquisitions by state-run firms in the UAE include Istithmar’s purchase of luxury fashion chain Barneys New York and a proposed bid for a 20 percent stake in a newly unified company comprising NASDAQ and OMX, the Nordic stock exchange.

Commenting on the deluge of dollars in the oil-producing regions, J. Robinson West, Chairman of PFC Energy, told The New York Times, “We are seeing a transfer of wealth of historic dimensions.”
#556008

On November 24th, 2008 at 3:19 pm, Stillwaiting said:

This makes me miss the old days when a single financial institution could not be so big that it’s failure would tank the markets. Maybe some things should be regulated. Human greed leads businesses to make moves that give them short-term gains at the expense of long-term stability. Then, because the business is so large, politicians don’t have the will to let it fail–and we all get screwed. If we don’t have the guts to let markets work on their own, then we need to regulate them.
#556017

On November 24th, 2008 at 3:23 pm, Ed Mahmoud abu al-Kahoul said:

If the taxpayers are going to have to pay for CitiGroup, we should at least own it. The government could buy common stock at the current price, lots of it, diluting the share of the current owners. When the price reaches a certain level on the way back up, the government would be mandated by law to sell a percentage each month, with the goal of re-privatizing CitiBank within a year or two of recovery, with a net profit to the government.

If we’re getting socialism anyway, might as well get bacon on it.
#556045

On November 24th, 2008 at 3:33 pm, Oxybeles said:

Funny, no matter how many times I try, Barbara Boxer and Dianne Feinstein refuse to vote the right way!
#556051

On November 24th, 2008 at 3:35 pm, Joy said:

Michelle – One correction…

We’re screwed ‘08 and beyond – until conservatism wins and fixes this mess. Or the Second Coming happens.

How long will it take for our children and children’s children to pay off this debt?
#556080

On November 24th, 2008 at 3:47 pm, MNUSMCDavid said:

Know what is sad about this? I read that those who are presently unemployed or have been will receive extensions on unemployed benefits of….. 7 weeks. Average payment per person… a little over 300 bucks per week. Any one else see something smelly about this?…. the slobs who worked and were let go get peanuts the banks and the entities that turned themselves into banks?…. billions. Yep crap sandwich 3.0.
#556097

On November 24th, 2008 at 3:54 pm, Leatherneck said:

I was watching CNBC this morning, and one of the anchors stated Citi was one of the reasons we got into this mess.

It appears, quite a few in Congress has sold out to these large companies where greed, and no moral compass exist. I wonder how many own stock to boot.
#556125

On November 24th, 2008 at 4:09 pm, Gorebot said:

It is near impossible to discern which is the most contemptible:

a). Big Guvmint.
b). Big Media.
c). The Idiot American Electorate.

It’s really beginning to look like bin Laden had a point: Collectively, we’re too stupid to deserve to surviving.
#556166

On November 24th, 2008 at 4:37 pm, JohnnyNJ said:

…a few years back we jailed guys who bankrupted companies(Enron, World Com), now the gubment gives them BILLIONS to stay in business and screw the public some more.

Seriously, I think those guys who were jailed because of shady accounting practices and “cooking the books” should be released and given a few billion to restart their old companies.
#556194

On November 24th, 2008 at 4:59 pm, It's Vintage, Duh said:

Did anyone else with a Citi credit card get a thing in the mail about an APR increase to 29%? Or is it just me?
#556277

On November 24th, 2008 at 6:14 pm, Joy said:

Well, if nothing else, the DemoCRAPS can’t say they hate CORPORATE America anymore. Nor can they claim to be fighting for the little guy!!

Except facts don’t matter…
#556279

On November 24th, 2008 at 6:16 pm, katablog said:

Lets assume, for simplicity, that there are 200M adult taxpayers who would get the $1M. That is $200T (200,000,000,000,000), nowhere near the $1-$2T offered up in the plan. The gov’t would spend $2T if each taxpayer got $10K.

Okay, let’s scale it down. $1 Million for each person who voted in the last election. That’s about 35 million people.

Then again, the ones that didn’t vote are probably the smart ones. Why waste the time anymore?
#556281

On November 24th, 2008 at 6:16 pm, Joy said:

Wonder what Peggy the Moocher is thinking right about now…….
#556283

On November 24th, 2008 at 6:17 pm, Joy said:

Never mind… no doubt nothing but crickets chirping in her brain..
#556327

On November 24th, 2008 at 7:11 pm, Helene said:

The Auto CEOs were asked if they flew to Washington via regular airlines.

Yet no one ever asked if the Union president about his travel arrangements.

No one ever asks about the salary of the Union mucky mucks or the amount of money the Union gets from dues.

Wonder why.
#556340

On November 24th, 2008 at 7:33 pm, Papa Louie said:

Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury.

I see they’re taking from the poor to give to the rich again. At least I now own preferred stock in Citigroup. When do I start receiving my trickle-down dividend?

The point to remember is that what the government gives, it must first take away.
— John S. Coleman
#556371

On November 24th, 2008 at 8:18 pm, heroyalwhyness said:

Quoting acorcoran discussing Alinsky-ism:

You simply cannot bring about “crisis” and “change” and ultimately a socialist form of government if the American population is basically content. Enter the immigrants. One must continually add ”diversity” and needy people to keep the anger level up. Frankly, the “want mores,” as Alinsky calls them, will demand more.

Of course it is couched in terms about ‘loving all sweaty humanity’ and that may be so at the lower levels of the open borders movement, but the reality, as I have shown previously, is that the Saul Alinsky leaders (Rev. Wright, Bill Ayers, Father Pfleger) are far from kind and gentle people, but are in fact filled with hatred.

Again, one must have the seething angry masses to destabilize communities and bring about a change in our form of government.

More: Retired intelligence officer shows how Alinsky influenced Obama
#556405

On November 24th, 2008 at 9:21 pm, RockyR said:

Let me get this straight: if the fed doesn’t go socialist on us right now, we’re going to hit the skids economically. if the fed goes socialist on us now, as it has, then any recovery brings with it the threat of serious inflation… but to counteract inflation the fed will have to pull it’s money out of the system during any recovery, thus removing the life support that is propping up the newly created economic bubble brought to us by Paulson, Bernanke, et al and sending us back into recession/depression. Hrm. Might this just mean that this whole scheme isn’t going to work and that we’re going to have to have some hard times?

Damed if the Fed does, damned if the Fed doesn’t…
#556410

On November 24th, 2008 at 9:31 pm, zyzzyg said:

Why is Pres Bush doing this? Again? And, again?
#556436

On November 24th, 2008 at 10:38 pm, happy2behere said:

ZyZZyg – I know with a loaded question like that you dont really want an answer, but here goes. There is plenty of blame to go around. People who borrowed irresponsibly, Barney Frank, Chris Dodd, Franklin Raines, Jamie Gorelick, deregulators, credit speculators and a host of others helped us to get here. Citibank, GM, et al are lining up at the trough like the pigs they are. The “Blame it on Bush” song is too simple a refrain.
#556475

On November 24th, 2008 at 11:55 pm, emjem24 said:

CitiGroup= Citi Fail. These are the same priority-challenged bafoons who’ve agreed to pony up approx. 400 million bucks to build the new Mets baseball stadium. They refuse to renege on the deal even when their company is going under because their NAME!!! will be on the stadium.

Such wisdom. How can I get in on this scam? Here I was wasting my time preparing to be a teacher when I could have become a reality-challenged financier who cannot prioritize instead.

It’s amazing what kind of behavior the federal government perpetuates just to stave off reorganization and bankruptcy, the two natural consequences to financial mismanagement within both companies and industries. Paulson and Co. are fools if they think they and they alone can contain the uncontrollable sunami of overextended credit.
#556485

On November 25th, 2008 at 12:14 am, torabora said:

mmmmmm Crap Sammich, with a snowball on top…mmmmm
#556520

On November 25th, 2008 at 5:07 am, BadIdeaGuy said:

Call me a tinfoil hat type but it seems like there will come a time really soon where those financing our bailout binge are going to show their true colors.

It’s like a drug dealer would give one free drugs until the person is hooked, then reveals the true price and indignity of the habit, it seems like this country is a junkie now. The only catch here is that what the country has to lose is its sovereignty.

I feel like we’re going to wake up one day and find that the nation that bought up all the ailing companies itself has been foreclosed on.
#556563

On November 25th, 2008 at 9:08 am, sonofdy said:

800 more billion this morning. I have lost count.
#556626

On November 25th, 2008 at 10:38 am, Weary Citizen said:

On November 24th, 2008 at 6:16 pm, katablog said:

Agreed on the “smart ones”. ACORN and other lib orgs did everything they could to get every single leech out there to the polls. Comes back to the premise that those who are lving on the dole should not be allowed to vote themeselves a raise. A voting welfare stae will doom us to bankruptcy.

As for the 35M voters, I remember the final tally of voters something like 62M obummer and 58m for mcamnesty. So 35M seems a little low (but maybe just my memory that is a little low).

At any rate, trying to keep the air in the bubble is fiscal insanity. We need very small and measured actions to stave off an abrupt economic death spiral, but rewarding bad businesses (and stupid consumers) with bailouts is insanity. Controlled chaos is what we need to get Americans off the credit addiction. BTW, all this crap about ‘tight credit for consumers’ is BS. I just bought a new tractor and the card companies are begging me to increase my creidt line. It is only tight for people with marginal/bad credit as it should be.