Citi Group Insanity

[ray23]

They were given 25 billion to increase luiqidity and flow back into loans. What did they do with it aqusitions.

Today another 20 billion.

Free enterprice my Butt, my chidren and their children are paying for this.

What would you do you loaned a friend who had problem and he he misused the funds?

You know what socialism may be bad thought. But it's up the the American Government to tell these guys my way or the highway.

None of this money should be going out without absolute controls and management changes, simple as that.

These entities have proven time and again that they are abusive. Don't want the controls then get your money from somewhere else not my family.

This was my biggest fear from the beginning.

[zen0]

Unfortunately that was one of the drawbacks to the bailout. The bailout requires no accountability when requesting and receiving funds from the $700m. I think that's the correct word for it, could be wrong. But either way it is not required for any "receipts" on what these companies spend the bailout on.

[GuestHouse]

The alternative is the Banking System is allowed to implode.

Starve now or eat now and pay later.

Its the better of two evils.

[thucydides]

As in any conflict truth is invariably the first casualty.

Governments across the board would have you believe that to do nothing to save the banks would mean armageddon and so it has become a tenet of the post boom economy that govts must subsidise them in a partial nationalisation.

Well, the banks are quite keen to support this for obvious reasons but is it really necessary?

The answer of course is a resounding no. Let them go to the wall and no one will notice the difference. The state can carry the mortgage book until such times property becomes an appreciating asset again and it can be sold. One giant bank fails and another will gain...nature abhors a vacuum.

The aftermath of a bust boom is inevitably contraction. To delay this is futile and will only prolong the pain.

Americans embracing socialism is a dreadful sight. Catch the British disease and they will definitely face ruin.

[Guest madcow]

As in any conflict truth is invariably the first casualty.

Governments across the board would have you believe that to do nothing to save the banks would mean armageddon and so it has become a tenet of the post boom economy that govts must subsidise them in a partial nationalisation.

Well, the banks are quite keen to support this for obvious reasons but is it really necessary?

The answer of course is a resounding no. Let them go to the wall and no one will notice the difference. The state can carry the mortgage book until such times property becomes an appreciating asset again and it can be sold. One giant bank fails and another will gain...nature abhors a vacuum.

The aftermath of a bust boom is inevitably contraction. To delay this is futile and will only prolong the pain.

Americans embracing socialism is a dreadful sight. Catch the British disease and they will definitely face ruin.

This is just un <deleted>..ing believable http://news.bbc.co.uk/2/hi/business/7745168.stm

Citigroup's market value fell to $20.5bn on Friday, compared with $270bn in 2006. :D

This is serious bleeding out of the a hole

There has to be some serious pain ahead , all the governments of so called developed countries recognize small businesses are the biggest employers and the backbones of any economy , but they consistently pull the badly managed

corporations out of the pooh , at ever increasing costs to the taxpayer .

Close to retirement , I consider I have lived in the best time in history , its all down hill from here :D

[Heng]

No pain... no pain.

[ray23]

Eat now pay later. Ok I will buy that certainly a serious situation.

My complaint what they do with first 25 billiion, bought addtional assets. That is cmpletely differnt thing.

They werre in such a hurry the first tiem around there were no pretections built in and that meant business as usual for Citi Group. Business as usual is done until there is a recovery.

That is what angers me. I really hope Obama realizes what Paulson did.

[Shotime]

"Close to retirement , I consider I have lived in the best time in history , its all down hill from here"

I feel the same way, but I'd still rather be 24.

I'm no financial genius, but I don't understand why there isn't more accountability for these institutions having gotten into this mess. Risky pool of assets, risky loans and securities, etc. Somebody made money from these risks.

As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.

That just doesn't seem to cut it.

[ray23]

Well for what it's woth guys I happy that I settled here six years ago, git the major stuff out he3 way, no way would I try to do the same thing today.

The restrictions apply to the second 20 Billion, not the first 25 Billion

[BEENTHEREDONETHAT]

The alternative is the Banking System is allowed to implode.

Starve now or eat now and pay later.

Its the better of two evils.

So far 22 banks have failed this year. No big impact, no implosion. So throwing money at them has served no purpose for the average person. They can say if it hadn't been for the 700B things would be worse and surely they would not lie to us would they?

[ray08]

Yet AIG , Citigroup ,still keep their fancy offices ,high salaries ,perks etc, surely before they give money to someone the government should insist that all fat is cut from a company ,thats what SME do. instead they just eat up the money and ask for more , I believe that even if citigroup went bust someone else would be there to take over the gap ,$ 45 Billion can go a long way in helping small business

Edited November 24, 2008 by ray08

[ray23]

Well heres is what gets me, if you went to Citi Group and got a loan would it be on thie terms or yours?

First 25 Billion not retrictions. Thats insane.

They are getting a loan form us, should be on our terms or they should be declined just like they would decline yuo, if you didn't agree to their terms.

That how the banking business works, from their angle.

[Heng]

And let's remember that no one (talking regular folks here, not jet setting bank/finance execs) was complaining when their bank stocks were still peachy.

[quiksilva]

Its not all roses for them, Citibank are also laying off 52,000 staff worldwide.

[henryalleman]

Its not all roses for them, Citibank are also laying off 52,000 staff worldwide.

if they did let Citibank go bankcrupt 15 years ago we would not have this problem today.

What they are doing is trowing good money to bad, and try to wake up a death corps.

[AlexLah]

The really funny part is that the Federal reserve is a group of private banks.

So the government is loaning money from the banks that are in trouble to help them.

To help them to do what exactly?

Hmmm?

Just another example.

Oh, and did I hear that City group asked for another 300 Billion?

Oooops,

http://www.bloomberg.com/apps/news?pid=ema...id=arEE1iClqDrk

[flying]

When did Billions suddenly turn into Trillions?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Remember when they needed to vote on these things?

Ah the good old days

Even if the vote was rigged they went through the motions.

Lastly who owns a big portion of Citi?

Saudi Prince Alwaleed bin Talal, the largest shareholder in Citigroup Inc

Ah a Saudi Prince? Who pledges to buy more? Ah same guy

Yet we have the hardest dang time getting a visa/green card for a Thai wife.

Home land security???

FUBAR is where the USA is today

[flying]

CitiBank – No Questions Asked

http://www.chrismartenson.com/blog/citiban...ions-asked/9258

When the Big Three automakers were finally settled in their chairs before the Congressional committee investigating whether they deserved a handout of $50 billion, they were asked a defining question; "How many of you flew commercial airlines to get here?"

No hands went up and they were sunk. Somehow the hubris of trotting about on private jets while asking for public money was simply too much for a suddenly stingy Congress.

No such questions were asked of the Citi bankers, in fact no hearings were even held, and they were given access to over $306 billion on the most favorable terms you could possibly imagine. This illustrates the power that the banking industry holds over our political process and it is a ruinous power. Why should Citi receive not only special treatment, but exorbitantly preferential treatment at taxpayer expense? I don't know, but I'd like some answers.

First, check out the terms of the deal:

Citi's Taxpayer Parachute

Another Sunday night, another ad hoc bank rescue rooted in no discernible principle. U.S. taxpayers, who invested $25 billion in Citigroup last month, will now pour in another $20 billion in exchange for preferred shares paying an 8% dividend.

Taxpayers will also help insure $306 billion of Citi's mortgage-backed securities. Citi will cover the first $29 billion in losses on these toxic assets, and then taxpayers will cover 90% of the rest, in exchange for another $7 billion in preferred.

What’s so special about this deal? First, the next $20 billion only provides taxpayers with an 8% yield. This is well below current market rates and, as such, represents a giveaway. I would guess that the cost of capital for Citi should be in the vicinity of 15% (or more) right about now.

So $10 billion of that $20 billion is pretty much of an outright gift. Second, I am concerned about how the toxic assets have been valued when setting this deal. The fair way to do it would have been to mark them to market forcing Citi to eat the losses that are already baked into those assets.

However, the implication in every article I’ve read is that the Citi “assets” were valued at their full cost (not value). This means that they are overvalued by some 30%-50%, almost without a doubt.

But that’s not the worst of it. When I dug into the Treasury Department website the terms of the deal said this:

Treasury Statement on Citigroup

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.

This is the most staggering giveaway I could have possibly imagined. To understand why, let’s review the definition of a non-recourse loan:

A nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but

the lender's recovery is limited to the collateral

. If the property is insufficient to cover the outstanding loan balance

This means that when, not if but when, the Citi defaults on this loan there will be no mechanism for recourse for the taxpayers. Why am I confident that Citi will default on this particular rescue loan? Because they are smart people and paying it off would be stupid.

The $300 billion of “assets” pledged as collateral for this loan are worth, perhaps, half that. Possibly as little as 10% if Citi has done its job and purged the worst of the worst from its balance sheet to tuck into this sweetheart deal.

So it's very simple. Either Citi makes good on the loan and repays all $300 billion and then takes possession of perhaps $30 billion of damaged assets or it defaults and keeps $300 billion.

What would you do?

I am, again, more than a little angry at this deal. It seems that when productive industries or actual citizens are involved, money is hard to find and difficult questions are asked. When banks need the cash? The results are enormous, immediate, and exceptionally favorable.

Also I highly recommend his crash course it is free & well worth the time to watch.

You will love chapters 6-7&8

Edited November 26, 2008 by flying

[ballbreaker]

I think the feds should guarantee the depositors money and nothing more. If the bank then fails let the stock holders and executives take the hit.

[BEENTHEREDONETHAT]

CitiBank – No Questions Asked

http://www.chrismartenson.com/blog/citiban...ions-asked/9258

When the Big Three automakers were finally settled in their chairs before the Congressional committee investigating whether they deserved a handout of $50 billion, they were asked a defining question; "How many of you flew commercial airlines to get here?"

No hands went up and they were sunk. Somehow the hubris of trotting about on private jets while asking for public money was simply too much for a suddenly stingy Congress.

No such questions were asked of the Citi bankers, in fact no hearings were even held, and they were given access to over $306 billion on the most favorable terms you could possibly imagine. This illustrates the power that the banking industry holds over our political process and it is a ruinous power. Why should Citi receive not only special treatment, but exorbitantly preferential treatment at taxpayer expense? I don't know, but I'd like some answers.

First, check out the terms of the deal:

Citi's Taxpayer Parachute

Another Sunday night, another ad hoc bank rescue rooted in no discernible principle. U.S. taxpayers, who invested $25 billion in Citigroup last month, will now pour in another $20 billion in exchange for preferred shares paying an 8% dividend.

Taxpayers will also help insure $306 billion of Citi's mortgage-backed securities. Citi will cover the first $29 billion in losses on these toxic assets, and then taxpayers will cover 90% of the rest, in exchange for another $7 billion in preferred.

What's so special about this deal? First, the next $20 billion only provides taxpayers with an 8% yield. This is well below current market rates and, as such, represents a giveaway. I would guess that the cost of capital for Citi should be in the vicinity of 15% (or more) right about now.

So $10 billion of that $20 billion is pretty much of an outright gift. Second, I am concerned about how the toxic assets have been valued when setting this deal. The fair way to do it would have been to mark them to market forcing Citi to eat the losses that are already baked into those assets.

However, the implication in every article I've read is that the Citi "assets" were valued at their full cost (not value). This means that they are overvalued by some 30%-50%, almost without a doubt.

But that's not the worst of it. When I dug into the Treasury Department website the terms of the deal said this:

Treasury Statement on Citigroup

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.

This is the most staggering giveaway I could have possibly imagined. To understand why, let's review the definition of a non-recourse loan:

A nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but

the lender's recovery is limited to the collateral

. If the property is insufficient to cover the outstanding loan balance

This means that when, not if but when, the Citi defaults on this loan there will be no mechanism for recourse for the taxpayers. Why am I confident that Citi will default on this particular rescue loan? Because they are smart people and paying it off would be stupid.

The $300 billion of "assets" pledged as collateral for this loan are worth, perhaps, half that. Possibly as little as 10% if Citi has done its job and purged the worst of the worst from its balance sheet to tuck into this sweetheart deal.

So it's very simple. Either Citi makes good on the loan and repays all $300 billion and then takes possession of perhaps $30 billion of damaged assets or it defaults and keeps $300 billion.

What would you do?

I am, again, more than a little angry at this deal. It seems that when productive industries or actual citizens are involved, money is hard to find and difficult questions are asked. When banks need the cash? The results are enormous, immediate, and exceptionally favorable.

Also I highly recommend his crash course it is free & well worth the time to watch.

You will love chapters 6-7&8

Very informative, good post Flying. I guess when your credit card is already maxed as the US credit card is a few more trillion don't really matter.

[flying]

Very informative, good post Flying. I guess when your credit card is already maxed as the US credit card is a few more trillion don't really matter.

Thanks I really like the style of the guy who wrote it.

His crash course is excellent & I have turned on a bunch of friends to it

http://www.chrismartenson.com/crashcourse

Short easy to watch & so informative.

[PeaceBlondie]

I may be a pacifist, but I had no objection if all the big bankers, including all Federal Reserve bankers, had been stripped naked and marched down Wall Street and chased by angry taxpayers. And replace all of them with janitors and maids. That includes Paulson and Bernacke. Let them survive by eating out of dumpsters.

[flying]

I may be a pacifist, but I had no objection if all the big bankers, including all Federal Reserve bankers, had been stripped naked and marched down Wall Street and chased by angry taxpayers. And replace all of them with janitors and maids. That includes Paulson and Bernacke. Let them survive by eating out of dumpsters.

From your mouth to some angry mobs ears please

[lannarebirth]

I may be a pacifist, but I had no objection if all the big bankers, including all Federal Reserve bankers, had been stripped naked and marched down Wall Street and chased by angry taxpayers. And replace all of them with janitors and maids. That includes Paulson and Bernacke. Let them survive by eating out of dumpsters.

Easy answer. Delusional, greedy, hateful public led to corrupt government which enabled bankers to do what bankers do.

Now for the lighter side. Read all the "articles":

http://iowahawk.typepad.com/iowahawk/

Edited November 26, 2008 by lannarebirth

[wrathfultalon]

The thing that kills me is all this money is going into businesses that just keep doing the same thing! I mean if i am scooping water out of my canoe and i just keep going at it, the leak wont fix itself. So how is this any different? it may not happen right away but eventually i will be swimming!!

[helitool]

Below is a link to the best article I have read thus far on the causes and lead-up to the crisis and why the governments are so ready to give money to these vermin. The main problem seems to be "over the counter" derivatives trading. This is where "private parties" are entering into derivatives trading with no brokerage house to mediate. Sort of the difference between casino gambling and shooting craps in a back ally!

www.marketoracle.co.uk/Article7487.html

[lannarebirth]

The thing that kills me is all this money is going into businesses that just keep doing the same thing! I mean if i am scooping water out of my canoe and i just keep going at it, the leak wont fix itself. So how is this any different? it may not happen right away but eventually i will be swimming!!

At this late point I am a little innured to the government spending going into these financials. What STILL makes me irate however is that they have yet to wipe out the positions of current common stock and bond holders. Without doing so it looks like it is the government lackies who moved from these Wall Street institutions merely helping their former and perhaps future workmates. Nationalize the banks, kill the stock market, that's fine with me, but sweetheart deals I do not like. The incoming administration has already shitcanned their change theme and appointed the same Wall Street thugs who caused the mess. For the moment the public is buying into it as they just hope it will make their stocks rebound. They live in hope that all this was just a "buying opportunity" and things will return to "normal". They seem to not understand the concept of "regression to the mean", "undershoots" and overshoots". Lucky to see former market highs in this lifetime IMO.

[lannarebirth]

Barry Ritholtz, a financial blogger, has run the numbers on the bailout, and he cites a guy named Jim Bianco of Bianco Research who crunched inflation-adjusted numbers and compared some previous federal government expenditures to the current total of the bailout. Now, depending on where you look, the total bailout money to date is either $6 trillion or $7.4 trillion. These guys, they just ran it up to $4.6 trillion, and it's more than that now. It's at least two trillion more than that. Now, the current national debt is like $7 trillion. Maybe it's higher than that. But regardless, that's irrelevant here.

This current bailout, calculated only up to $4.6 trillion, has cost more than all of the following government expenditures combined. Are you ready? The Marshall Plan. The Louisiana Purchase. The race to the moon. The S&L crisis. The Korean War. The New Deal. The invasion of Iraq. The Vietnam War. And NASA.

All of those combined, in inflation-adjusted dollars, equal $3.92 trillion in today's dollars. This bailout is more than all of those combined. Now, would you like to hear the inflation-adjusted dollar amounts for each of these line items? The Marshall Plan, back when we did it, cost $12.7 billion -- and it rebuilt Europe after World War II. If we did the Marshall Plan today, it would cost $115.3 billion. We rebuilt European for $115.3 billion in today's dollars; and we have just spent, according to these guys, $4.6 trillion on bailouts of the US financial industry. The Louisiana Purchase, in today's dollars, would cost $217 billion.

The race to the moon, in today's dollars, would have cost $237 billion. That's more than the Marshall Plan and Louisiana Purchase in today's dollars. The S&L crisis. We bailed out the S&Ls and fixed that. In today's dollars, it would cost $256 billion. Back then it was $153 billion. The Korean War, $54 billion back in the fifties. Today's cost would be $454 billion. The New Deal. Today's dollars, estimated to be $500 billion, if we did the New Deal today. That's half a trillion. We have spent $4.6 trillion. The New Deal was half a trillion in today's dollars. We have spent $4.6 trillion, and probably more than that, at least six or seven. The invasion of Iraq, $597 billion in today's dollars. The Vietnam War. Back in the era of the Vietnam War, it cost $111 billion. To do it today would cost $698 billion. And NASA. This is not the race to moon. This is the whole NASA budget. Over the years, $416.7 billion. In today's dollars, it's $851.2 billion. This is an annual cost for NASA.

So, all of these add up to $3.92 trillion.

The only thing that comes close is World War II, and even that cost less than what we have spent. Again, I have to emphasize, this is using a figure of $4.6 trillion as the bailout today. It is far, far more than that.

More: U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

http://www.bloomberg.com/apps/news?pid=new...id=a5PxZ0NcDI4o

[pampal]

I just got an email from my US Citibank stating that my deposits have UNLIMITED FDIC insurance, I thought the max amount for FDIC insurance is 250K US.

[AlexLah]

Took the Crash Course.

Very nice presentation.

The only thing that I found a bit weak was the Energy part.

I mean he is saying that we are beyond peak oil so price of oil and food should be rising.

Yes they did for some time.

But now they are down, sign of deflation?

A silence before the storm?