US Bails Out Citigroup

Federal regulators took extreme steps to prop up Citigroup, backing $306 billion of mainly real estate loans and securities and directly injecting money by buying $20 billion of preferred stock. The $20 billion of stock will pay an 8% dividend. Regulators will also get an additional $7 billion of preferred stock. Citigroup will basically halt dividend payments for 3 years and limit some executive pay. It will also implement the FDIC’s loan modification plan, which is close to the one it had already announced for itself.

U.S. Approves Plan to Help Citigroup Cope With Losses [NYT] (Photo: Spencer E Holtaway)

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  1. Snarkysnake says:

    What would you do if your neighbor came to your front door and told you that he/she would be going to Las Vegas and gambling money from everyone in the neighborhood ? Now what if he/she told you that if he/she won,they would get to keep every cent ? NOW suppose that they told you that you and the neighbors would be compelled to make good any losses at the slots,crap tables ,etc…

    What would you do ?

    Well, that’s what just happened this morning when our government bailed out Citi.(Don’t forget that one of the largest shareholders in Citi is a Saudi prince and one of the richest men in the world)

    Capitalism without bankruptcy is like christianity without hell…

    • Ein2015 says:

      @Snarkysnake: Citation please. I’d like to discuss this matter with some friends of mine… so sources will be needed. :)

      • crabbyman6 says:

        @Ein2015: I was interested in this too, a quick google search gave me this: [www.bloomberg.com] Apparently he had a 4% stake in citigroup and helped them once before in 1991, but plans to up his stake to 5% to try to help them again.

      • Snarkysnake says:

        @Ein2015:

        Prince Al-Walid bin Talal bin Abdul Aziz Al Saud.

        This is the guy. Check out Forbes ,The Wall Street Journal etc…
        This is well known. He has had a large stake in this bank since 1991.Forbes puts him at 20th richest in the world. how do you feel when you schlepp to your job every day and take crap off of the boss and the customers so that your taxes bail people like this out ?

    • papahoth says:

      @Snarkysnake: So we should let them go like Lehmann’s and drive the global economy further into the ground just so we can be morally pure in your opinion?

      • Snarkysnake says:

        @papahoth:

        You’re right . I’m a fool for not seeing it sooner . We should let Citibank and their management just back up the truck to the treasury of this country and take what they need. Since the money is earned by people that are not as smart as they are,it’s probably a better use anyway.

        BUT…Before you put the Citi dump truck in “R” remember this. The big swinging dicks that fucked this bank up will emerge richer and unscathed from this. The common shareholders probably are wiped out (even though the stock shot up like a rocket today). But a single mother working two jobs cannot have her debts discharged in bankruptcy in America 2008 unless she can prove “extreme hardship” to a court. Citi and the other bailout welfare queens pushed that little nugget through acouple of years ago.How does that make you feel ?

  2. SweetBearCub says:

    I wonder why the government just doesn’t let these businesses collapse. If they made bad investments, they should have to pay the price for them. If that price is a bankruptcy from which they never successfully recover, then so be it.

    Part of the risk of capitalism is total bankruptcy, or so I thought.

    Granted, if the government made it known several months ago that they refused to bail out anyone, and if all they did was increase safety net services – emergency shelters, emergency food boxes, etc – A lot of people would suffer, but would we come out better for the experience in the end?

    I think so.

    • Notsewfast says:

      @SweetBearCub:

      I’ve said it here before, but i think that the government’s priority should be to preserve assets, investments, and deposits (as well as loans and other debt), but the preservation of the actual financial firms should be low on the priority list.

      If we’re going to socialize these banks for a time, then there should be a government agency set up to hold and manage these assets and liabilities and work to sell them to firms that have enough liquidity to purchase them.

      There is no reason as far as I can tell for ‘Citi’ or ‘AIG’ ,as companies, to exist anymore.

    • Oranges w/ Cheese says:

      @SweetBearCub: My question is what happens to your mortgages, car loans, etc when a company like this goes under? Are you suddenly off scott free?

      • Traveshamockery says:

        @Oranges w/ Cheese: To expand on my thought, it would be pretty funny to get a million mortgage holders in cahoots, all refuse to pay their mortgages, and run their bank into the ground, resulting in free houses for the whole lot!

        /yes I know it doesn’t work that way, and someone should burn in hell for doing something like that.

      • Erwos says:

        @Oranges w/ Cheese: Your loans are assets. They go to the creditors. You will _never_ get off scot-free from a loan – unless you declare bankruptcy yourself, which is what these guys are doing.

      • failurate says:

        @Oranges w/ Cheese: Very unlikely. You will owe whoever picks up the pieces. Debt would be one assets sold.

    • Triborough says:

      @SweetBearCub: Because they are in cahoots with these companies.

    • Skybolt says:

      @SweetBearCub: That’s easy to say if you’re not one of the people suffering. I do not agree that it is worth doing great harm to thousands or millions of bystanders just to punish the dirtbags who ruined these companies, especially when there are ways to save the companies without rewarding the dirtbags.

      Has Paulson run the bailouts properly? No. Should there have been sensible regulations in place that would have prevented the worst of the current crisis? Yes. But the idea that any bailout is a bad idea, and that if we just let these firms collapse, and destroy the economy, and bring about mass poverty and homelessness, in the end we will be better off, is just wrong. It is the government’s job to regulate markets and moderate their worst aspects.

      Letting these companies collapse just gets you a depression. Next year, we can talk about how we keep this from happening again. Right now, we have no rational choice other than the bailouts.

    • redclear55 says:

      @SweetBearCub: why let them collapse when we can get a great buying opportunity out of it? See quote from OP: “directly injecting money by buying $20 billion of preferred stock. The $20 billion of stock will pay an 8% dividend.”

      8% dividend and the extreme undervalued stock price means that the govt (aka us) are positioned to make a tidy profit.

      btw… can you further define what you mean by “a lot of people would suffer?”. I think you are undermining how big that number would be.

  3. Tmoney02 says:

    If a company is “too big to fail” Shouldn’t that mean that the company needs to be broken up?

    Or at the least forced to maintain some sort of insurance and/or rainy day fund?

    • oneandone says:

      @Tmoney02: I agree & Yes. From what I understand, AIG was insuring itself, and somehow this was legit. I don’t understand how that can work, but I think that was one of the big problems.

      I don’t think Citi did the same thing, but it wouldn’t be unreasonable to expect some kind of insurance. On the other hand, they completely mis-evaluated the risks involved, so adequate insurance probably wasn’t a priority. This is all just speculation on my part.

    • redclear55 says:

      @Tmoney02: ok… so lets follow your thought process out. Let’s break apart Citi and sell which parts and to whom? the main problem here is that people have risky assets on their books which cannot be quantified. So these companies are holding onto their cash in case they need it in the future. So who is going to buy the different parts of Citi? I think the appropriate question is… which company who would be interested in Citi does not have risky assets on their books?

      Lastly… the cost of integrating companies together is VERY expensive. Not only do you have to pony up a good will bid to buy the company but you must allocate your future resources to pay for the integration. Not sure how many companies are in a good enough position to tackle that kind of situation. Govt bailout, while unpopular, is the best option we have.

      • Tmoney02 says:

        @redclear55:

        I understand the issues behind the meltdown, but my proposal would be done before the meltdown occurred or now, after the economy recovers. Not at this moment. Basically it would prevent the need of a government bailout, or at least put a large damper on the amount of money needed from the government.

        With that said asking who can afford to buy citi is moot. Also chances are any company that can afford to buy a part of citi is itself too big or would become too big to fail so that wouldn’t be allowed unless it the parts are very small. This also makes your integrating companies worries moot as well.

        Basically for most companies it would have to be a choice of
        1)spinning the various departments/regions off into separate and independent entities ala MA Bell.

        2) In exchange for maintaining the status of a company too large to fail the comapny would have to have an “emergency fund” that is made of government bonds and cash equal to a certain percentage of their total assets. Also they would need to maintain a third party insurance policy for a even larger amount of their assets.

        So just to throw a number out for an example:
        If Citi was holding 300 billion in loans they would need 30 billion locked away (10% of assets). (Not asking to much since at the moment they have 50 billion on hand). Between the cash and the third party insurance, it seems it would have taken less government money.

        Basically there seems to be a conscensus in the government and the markets that some companies “are too big to fail”. If that is true why do

  4. MA35TRO says:

    I think that the Government should bail ME out. Screw the $600 stimulus checks. I have bills. It wouldn’t even be that much for them, just a hundred grand or so would do me just fine. Hell, they should make Michael Vick bail people out with his “pocket money”.

  5. Bladefist says:

    I keep hoping the government will go on winter vacation. I’m sick of them showing up for work.

  6. SexCpotatoes says:

    I hadn’t heard about the Citi nonsense until a supervisor that likes to talk about the market with me most days mentioned that the executives invested their bonuses back into the company to try to prop it up and make it seem like they were actually trying to save it.

    I then made the analogy:

    “That’s like a crackhead buying baby formula so they can pass the home inspection part of getting approved for welfare, then drinking the formula, starving the baby, and going out with the government check to stock back up on the crack.”

    I thought it was a great analogy…

  7. Blueskylaw says:

    Its a done deal already. Lets hope it works out and that the government (we/us) get our money back with plenty of interest.

  8. vermontwriter says:

    Ugh. My poor kids are going to be broke for their entire lives at this point. I’m so tired of these bailouts. We’re all going to pay for it in the end. And since I’m going to be paying, can I be bailed out? The amount of money I need is pocket change compared to these larger corporations!

  9. scoosdad says:

    I volunteer to be bailed out. I have a fixed (low) rate Citibank mortgage that I’d love to have the government pay off for me so Citibank can concentrate on customers who generate more income for them than I do!

    • oneandone says:

      @scoosdad: Same – except mine is a fixed low rate student loan. But I have a feeling that we *are* the income generators, and will probably be getting quite a bit of attention. I guess this is extra incentive to not be late… or maybe it’s a new position of strength? I am tempted to call and see if my rates can be adjusted down. Never considered it before.

  10. everfade says:

    Homebuilders are coming out now with their tin cups in hand.

    Bailouts for everyone!
    Except our citizens, you guys can rot.

  11. sinfuly Delicious says:

    WILL SOMEONE THINK OF THE CHILDREN!!!!..

    Sorry. Just seems like something to say.

  12. failurate says:

    Anyone else get a letter last week stating that their CitiCard interest rate was going up by 5+ percent (13% to 18%)? I’ve also noticed that they have pulled back all of their balance transfer offers.

    • feline says:

      @failurate: I don’t have a CitiCard, but I did get a letter that my home equity line of credit was being locked up so that there were no more draws on it permitted. Just payments. Maybe the interest rate letter is next.

    • Erwos says:

      @failurate: We did. We have _always_ paid off our bills at the end of the month – I literally cannot remember ever being late, forget carrying a balance. I think there was a Consumerist article about them reneging on some sort of pledge _not_ to do that, in fact.

      However, if Citi feels as if there is some sort of blanket increase in the risk of default by _everyone_, which is not an unwarranted assumption as we hit an economic downturn, then I can’t really blame them – it’s a rational thing to do. Indeed, if they’re getting bailed out by the government, I suppose I should support anything legal that they do to keep profitable.

    • TexasBelle says:

      @failurate: And interestingly, as recently as yesterday, the front page of the Citicards Web site was still advertising 0% balance transfers. Maybe we’d all get better deals if we were new customers without, yanno, long-established excellent account histories with Citibank.

    • jlayman920 says:

      @failurate: nope, still plenty of balance transfers offered. They’ll never do away with them because they are insanely profitable. They get the interest you pay on your transfer after you make it and the 3% charged to do the transfer.

    • TreyWaters says:

      @failurate: Yup. Got mine yesterday. My rate went from 11.99 -> 18.99 because “market conditions have made it more expensive to do business.”

      I tried telling the CS rep that the Federal Reserve has lowered interest rates for banks making it CHEAPER to do business. He didn’t have an answer.

      Oh well. I actually liked the Thank You network rewards program. I guess I’ll stick with my CU’s 5.99% fixed-rate Visa.

  13. Traveshamockery says:

    @undefined: @Oranges w/ Cheese: Haha, I’ve always wondered that. What really happens is that banks don’t just go under…they’re always bought by somebody, since assets like loans still have value. You are just in debt to whoever buys your failed mortgage holding bank.

  14. Velifer says:

    Hey, what’s the big deal? The government is only risking around $1,000 for each person in the entire US on this gamble.

    Surely, if asked, each of us would chip in at least that much for a company that treats us so very well. Right guys?

    …guys?

  15. lastingsmilledge says:

    dear taxpayers,

    thanks again!

    love,
    the new york mets

  16. Imakeholesinu says:

    I think it is kinda ironic I went to make a payment on my citibank visa and, low and behold, their website isn’t allowing logins. They said their was supposed to be maintenance from 1am to 8am ET but it’s now 1pm. Maybe I should just default and get a bailout since their site seems to be down. What do you all think?

  17. dragonfire81 says:

    Bailouts, Bailouts, Bailouts.

    First Citi, then the Automakers, then who’s next after that??

    You don’t get anywhere by continually throwing money into a black hole.

    Let me run with that Vegas example: You had a decent run in blackjack, but then the odds went against your more and you lost a fair bit of money. You’re in danger of losing everything and you come to me looking for $1000 to try and win it back, but you have no plans to alter your playing strategy IN ANY WAY.

    Instead you convince me that it would not be in my best interests to let you run out of money completely and such an event would be catastrophic in nature so you desperately need the $1000. But of course I have no guarantees that if I give you the money, I’ll ever see any of it back.

    What happens when later on you come back to me begging for more, having blown through the $1000, using the same argument that the possible consequences of letting you fail should be reason enough for me to cough up more money??

    Where does it stop?? We can’t fix the economy by continually throwing money at the broken parts. We need proper control and regulations and limitations as to where and how that money gets spend.

    The government claims they are doing this but I have my doubts.

    With every bailout, the american people get more and more frustrated at their leaders…

    • papahoth says:

      @dragonfire81: They will be more frustrated if we let them go like Lehmann and get closer to a world-wide depression. The fall of Lehmann we now know was a mistake as it caused panic and froze credit world-wide.

    • redclear55 says:

      @dragonfire81: that is exactly how you fix the problem. How do you think it will resolve itself? if every company goes bankrupt and out of business, then we have no economy. Think of the wild west, but there’s no gold to dig up. just chaos and lawlessness.

      I look at it this way… if we have more unemployment, then we have more people not contributing to the tax bucket that pays for things like homeland security, police officers, fire fighters, education, road maintenance, (should I keep going?). to me, borrowing money with the intent to get paid back and the side effect is keeping our country from spiraling into chaos… not a bad deal. I would love to hear counter-theories.

      I understand my “analogy” is extreme, but so is everyone else’s perspective thus far.

      • dragonfire81 says:

        @redclear55: I agree money is the answer but not BLANK CHECKS. I’m talking controlled expenditures with very specific requirements and objectives. No carte blance.

  18. Anonymous says:
  19. jaydez says:

    This bailout works out to be about $55 per citizen in the US. I think if thats the case, every citizen should be given a number of stocke equivalent to that at this morning’s price. It would have worked out to be about 10 shares each. That way if, and when Citi recovers we all get a share of the action.

    Hell. The governement can keep the shares, just give me the money off of my taxes at a pre-determined date in the future.

  20. savdavid says:

    So the GOP believes in the Free Market? HAHAHA! Only for the middle class. Big Business is immune from the free market as the GOP government bails them out, makes laws to protect them from competition, lawsuits and regulations. Note to GOP: you are not helping your cause or Big Business by bailing them out for being lazy, to cheap to invest in research and development or producing a inferior product. You make yourselves look like the co-crooks you are with Big Business while giving your own country the bird.

    • Rugbydan says:

      @savdavid:

      Last time I checked, the Democrats have control of Congress and the Senate, so watch where you aim your Blame-O-Ray.

      Democrats and Republicans should be equally ashamed at the state of the union.

    • econobiker says:

      @savdavid: Is it that the GOP believes that the free market is only for welfare mammas with 5 children by 3 fathers who are in jail or dead and that those women who should be working instead of living off of the government???

  21. oneliketadow says:

    Maybe I should stop paying my Citi mortgage and Citi credit card now. They already have all my tax dollars, fuckers.

  22. TexasBelle says:

    Got a letter on Friday from Citibank. They’re jacking up the interest rate on my Mastercard from 10.49% to 16.99%. But the joke’s on them since I don’t carry a balance. If I did, I’d be really, really mad right now. So far, my credit limit is intact….

  23. mexifelio says:

    Wow, now the us is bailing out companies that outsource most of their customer service to India.. nice!

    Government bailout is the new bankruptcy!

  24. Rugbydan says:

    I work at Citi, and I’m disgusted with almost everything they are doing. If it makes you feel better, the employees get treated like crap as well as account holders/credit card holders/etc.

  25. Anonymous says:

    It’s our faults. We allow them to do this by continuing to vote for the politicians that puch this crap through.

    What we as citizens should have done is collect all the issues in front of our politicians that have been raging for decades (abortion, drug reform, immigration, etc.) that have not been solved. Take the issues and have one big reforendum – WE the people get to vote on it all. Whatever passes, passes. Whatever doesn’t – well, it’s now a dead issue.

    We should have allowed the bailout only under these conditions. Hell, we aren’t getting a share of the loot, but at least we REALLY got our say in what’s important to us.

    We were going to be on the short end regardless – we should have at least gotten some REAL CHANGE and REFORM out of it.

    • econobiker says:

      @UlaYak: Real change and reform come from voting for a different party than democrat or republican – both of which are business owned or controlled.

      If you think that I am lying, try researching the so called Debates, how the dems and repubs control access to the “debates”, and specifically how the “debate-a-mericals” are funded. I think you will find more corporate money being thrown to this “non-partisan” (as long as you are not in an alternative political party) debate commission than anyone dreamed…

      Nader or any of the other alternative party candidates, et al would have kicked the businesses butts down the pike. We could have just had everyone file with the IRS how much money they were under or behind for and funded the actual mortgage bailouts that way….

  26. billbobbins says:

    So the reward for driving your company to the point of failure is some free money? Oh they say it’s a loan..or a bridge, but you know they will never be asked to repay it nor will they be able to. I feel like I am being punished for running a successful business.

    I worked on a training project for Citibank in the mid-90s. Some Citibank employees would come to the post-lunch session drunk and fall asleep in their chairs! And none of their coworkers thought anything of it.

    Let them all go bankrupt..automakers, Citibank, and the rest. They’re not going to disappear, get real. There is too much money at stake and another company will take their place to fill the void. These will be companies that realize there is no magic bailout to save them and that they had better run their company right.

  27. Canoehead says:
  28. highpitch_83 says:

    @undefined: @Skybolt: At what point does the legislature realize that these bailouts are being handled properly and either:
    a) increase the regulation going into the disbursment
    b) remove paulson from his role in the situation

    Surely they can amend the legislature that has been put in place to improve the process right?! Or am I just naive’?

  29. kwsventures says:

    Bailout City. We are going to be like Japan. The Japanese wouldn’t let anything fail. They used taxpayer money to create “zombie” companies. Note: The Nikkei Stock Index was 39,000 in 1989. It is 8,000 now. Bailouts kill the economy long term.

  30. Anonymous says:

    I agree with what many people have said. I think this idea that they’re too big to fail is bull. But what are we doing? We’re giving them billions of dollars so they can continue to rape the poor people who have balances on their credit cards, so they can continue to get mortgage payments from anyone who can still afford to pay, so that they can still make money off the poverty and hardships of the American people. Why don’t we just say, “hey, whoever has loans or mortgages from Citigroup, all is forgiven and we are dissolving this company.” I CANNOT comprehend how we’re giving this company so much money for what? so that the same idiots who got us into this mess can attempt to clean it it? It’s like giving money to a drug addict and telling him “now go clean up your life and fix the mess you made.” Do you really trust him to use that money as more wisely than he had before?

  31. shepd says:

    Damn. There goes my last hope this year for Bell to get broken up. There’s always the stock plunge after the Teacher’s Pension Plan finds out how awesomely mismanaged it is next year to look forward to!

  32. Anonymous says:

    I’m behind on my CitiBank card. What do you suppose will happen if I call them and tell them I don’t have to pay my bills if they don’t have to pay their bills??

    Hey – why should I be responsible for the bad situation I got myself into if they aren’t?

  33. redclear55 says:

    what I don’t understand about the comments to this topic is the ignorance about the ENTIRE economy. Yes.. if the rest of the economy is doing well, then let Citi () fail. But when the markets are free-falling into the same abyss as everyone else, then it would appear to me that the bailout is necessary.

    Go ahead and let all these companies fail… but good luck finding someone to take your American dollars because they will be worthless. Think about the ramifications of letting a company of the type and size of Citi fail… 350k thousand people worldwide out of jobs. Look at all the companies that exist because Citi lends them money… or people who use their credit cards. What happens to their access to capital? So when the Giant falls, so do the little guys.

    What about the market’s fear and irrational trading of sound companies. All this is about predicting what might happen… the market is trading on the worst case scenario. Anyone know what Citi’s book value is? Last I heard it was around $15.00 a share… so what does it mean that the stock is trading at a third of that? it’s completely irrational. So the govt has to interject liquidity in order to assuage the doomsday seekers out there.

    This is a short-term loss for a long-term gain… Keynesian economics. [en.wikipedia.org]

  34. gStein_*|bringing starpipe back|* says:

    BULLSHIT
    i’m sick of my tax dollars going towards fixing the shit these companies got themselves into, while none of my tax money goes where i’d really like to see it: medical research

  35. vermontwriter says:

    Now I know why they’ve been calling me eighteen times a day. When I bought furniture from a local company three years ago, I took advantage of the “no-interest for four years.” The company financed through Citibank. I’ve paid on time and almost have it paid off. But last week, they started calling me repeatedly, not that I bother answering the phone when I see who it is.

    Wonder if they’re going to try to negotiate themselves out of that deal.

  36. TVarmy says:

    So, let me get this straight. I’m a client with Wachovia, and then they go down. Citibank and Wells Fargo squabble over the corpse, and then I get the Citibank half. Then they massively mismanage themselves.

    If they were ecnomically hurting, wouldn’t the rational thing for them to do be to act conservatively and not try and buy another bank chain?

  37. johnnya2 says:

    I wanna know why congress and Paulson are happy to say the Detroit 3 are running their companies improperly and should get with the program, but every bank EVEN THE PROFITABLE ONES are getting taxpayermoney. Socialize medicine, banking, and education. They are necessary parts of society and should not be left in the hands of for profit idiots. How much more money could be lent in a market without all the duplicated paperwork and employees in the banking world. The economy could be based on people actually producing something of value, rather than making money on transacting money.