24 November 2008

The Sad Tail of Citi

So the US government is putting in $20 billion for non-voting preferred stock and guaranteeing over $300 billion in securities.

They are getting only 8% on this, and remember that Citi's market cap was $22 billion. That $20B should have given the Feds 90% control of the company.

They should have taken it over, and fired (no golden parachute) upper management...Particularly Robert Rubin.

Instead, it's a suspension of dividends, and some cosmetic restrictions in executive pay.

Paul Krugman nails it:
Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

Amazing how much damage the lame ducks can do in the time remaining
Paul Kedrosky goes into a bit more detail in Good Bank, Bad Bank, and F$#ked Bank ($# mine):

Here is the gist:

  • Citi will carve out $300-billion in troubled assets, which will remain on its balance sheet
    • The first $37-$40-billion in losses on those assets will go to Citi
    • The next $5-billion in losses will hit Treasury
    • The next $10-billion in losses will go to the FDIC
    • Any more losses will go to the Fed
  • There will be no management changes at Citi, because, you know, they are all fine and upstanding people who have done nothing wrong
  • There will be some compensation limitations, but those have not yet been made clear

To be clear, this is not a "bad bank" model. Assets are not, apparently, being taken off the Citi balance sheet and put into another entity walled off from the Citi biological host. Instead, they are being left on the Citi balance sheet, but tagged and bagged for eventual disposal via taxpayers. In other words, we are, given the size and nature of the maneuver, creating a new variant on the good/bad bank model that I hereby christen "f$#ked" bank. You do that, of course, when removing all the toxic assets from a "good" bank's balance sheet would leave no bank behind at all.

(emphasis mine)

You know, I was wrong when I said that Robert Rubin should be fired. He should be pursued by criminal authorities with the same Javertian intensity that that corrupt prosecutor did in the Julie Amero case (previous post).

Robert Rubin needs to go to jail for a very long time.


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