Wikinvest Wire

$300 billion doesn't seem like a lot anymore

Sunday, November 23, 2008

The Wall Street Journal reports that Citibank has become the latest recipient of a government bailout - this one to the tune of $300 billion, or thereabouts, depending upon how you do the math which, in this case, appears to be quite complicated.

Somehow, $300 billion doesn't sound like a lot of money anymore ... it should.

Earlier today they were talking about a $500 to $700 billion stimulus package that will be on President Obama's desk, ready to sign, on inauguration day.

That must be a new record - a cool trillion in government commitments in a single day.

The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years -- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.
Well it's a good thing we have the Fed to bat cleanup.

Later in the report they mention $1.23 trillion in "entities" that are still being kept "off the books" at Citibank. Based on their current $2 trillion in "entities" that are "on the books", even more government help may yet be needed.

This video might help to explain why big banks keep getting bailed out. The late Mr. Carlin starts out talking about education but quickly turns his attention to Wall Street.

Favorite line: "It's a big club, and you ain't in it. You and I are not in the big club"


Anthony J. Alfidi said...

Something's gotta give. We can't keep endlessly handing out bailout money without curtailing the proposed fiscal stimulus. That $250B in bad assets that the Fed has agreed to backstop spells inflation.

Anonymous said...

Yes, Tim. Like George says, (and he's funny so it MUST BE TRUE, right?) it's all the big bad rich guys MAKING us spend our money on stuff from the purple store, big screen tvs, $500 signed bubblegum cards from pro players, $800 cell phones, granite countertops to replace the perfectly good ones already in place, and gaudy McMansions. And I hear there is actual proof that they hold blue collar rednecks at gunpoint to make them spend the health insurance premium money on bass boats and 4 wheelers. Then those greedy pigs make people smoke and drink to the tune of about $400/month. I hear some people are so poor they can't even afford the upgrade package on their Direct TV!

And those rich bastards are forcing kids to drop out of school, even forcing them to decline the FREE COLLEGE EDUCATIONS in many states. They are behind the conspiracy to force students not to study, too.

And lord knows social security gives you fantastic returns on your money! Much better than you could do yourself! Those greedy criminals just want to steal it. I prefer my -2% inflation adjusted return to the chance they'll steal it!

Carlin could be funny, but he was economically ignorant. This class warfare stuff is a huge part of the current problem and is leading us down the road to socialist shared misery. So why glorify it here?

Tim said...

"So why glorify it here?" It's not the class warfare that's important, as you suggest - we haven't had class warfare yet since both rich and poor have been so drunk on easy money up until about a year ago and are just now sobering up. What's important is that the current system fostered such a huge disparity in income between rich and poor, and now that it's all gone to hell, there's a huge disparity in the bailout.

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