Citigroup went on life support and Paulson got the subprime slush fund that he sought nearly two years. Some of this money came from Citi itself, and it will be used to buy up the radio active waste necessary to keep the ponzi finance scam rolling along.
The idea behind it was to get the biggest banks to buy other banks’ junk that no one else would buy. In essence, this forms a ponzi scheme within a ponzi scheme. Now Hank has the power of the Federal Government’s infinite debt base and the FED’s printing press. Those toxins no one else will touch can be dropped onto the FED’s steadily swelling balance sheet. The only blow back is an insolvent nation and hyperinflation, but that’s a small price for small folks to pay for the privelege of keeping the greedy, well-connected elite in their lavish lifestyles.
The U.S. government’s emergency rescue of Citigroup Inc. offers a new model for bank bailouts: explicitly insuring against losses on toxic assets, with taxpayers footing the bill.
The Citigroup plan extends the federal commitment beyond the previous framework of capital injections from the Treasury and credit from the Federal Reserve. Now, the U.S. is a partner in the performance of $306 billion in real-estate loans and securities, sharing losses beyond $29 billion on what are likely to be some of Citigroup’s worst holdings.
“Everybody and his brother has got to have their hand out now,” said Eric Hovde, chief investment officer at Hovde Capital Advisors, which manages $1 billion in financial-services stocks. “The whole problem is so much bigger and deeper than the Fed and Treasury ever understood.”
Well Eric, that’s everybody and his brother has who has nine figures of net worth and the letters NWO branded on their forehead. Of course, the bursting of the credit bubble has got a lot of folks downright upset, and they have a crazy way of seeing things.
Critics have accused Citigroup of taking too many risks. At this point, is there any amount of mismanagement that would disqualify Citigroup or any other financial firms from receiving taxpayer money, or does any large firm qualify for any amount of assistance that it might need? The bailout has other strings attached; the firm agreed to cut dividends and limit executive compensation. But at some point, should the firm’s managers, directors, and shareholders be sent packing altogether?
CRINGE!
What? Why isn’t everybody cheery about things? Maybe it’s the dangling dead weight of $249B weighing the good times down.
Taxpayers are conceivably on the hook for 90% of ($306 billion – $29 billion), in other words about $249 billion. But where does this money come from? Congress did not appropriate $249 billion for this.
This bailout represents a huge taxpayer risk. Yet it’s important to note that not all of the collateral will go bad. The percentage that might go bad depends on the valuation and selection of assets.
Ok, Mish. It might not all blow up, but you know better than most not to bet on that. Actually we may have had a chance to make it work right a la the Swedish “good bank” and “bad bank” model, but that chance is gone and that may be what the Citi bailout is all about. During its banking crisis in the 90′s, Sweden essentially partially nationalized it’s banks, which kept banking operations going while taking a bite out of the fat cats. But Paulson proposed the TARP instead and went too far down that road before realizing it was a dead end. That was when he announced that Treasury would not pass out anymore bucks. This is why!
Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.
The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today — with a black hole of negative net worth that would swallow Paulson’s entire $700 billion in one gulp.’
That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.
That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the ‘troubled’ assets.’ That is what the latest nationalization of Citigroup is about.
Whatever this deal is about, it is neither a full bailout nor implosion. Rather it is a full blown waste of billions of dollars from working stiffs. With Citigroup’s credit card defaults picking up, the over-leverage rotting on its balance sheet, and the credit crisis setting in even deeper in 2009, humpty dumpty is going down in flames no matter what the kings horses and men cook up.
A day after US taxpayers saved Citi’s bacon for the second time, analysts are already talking about the next steps the company needs to take if it is to survive.
While the government deal bolsters Citigroup’s capital ratios, “we are concerned that losses may eventually exceed the government’s backstop,” said Standard & Poor’s equity analyst Stuart Plesser.
What Stuart Plesser means to say is that he is absolutely certain losses will exceed the government’s backstop. You should also be absolutely certain of this, and you can also be absolutely sure that there will be second and third bailout attempts that will fail just like the first. These bailouts will all fail, just as Mish long ago predicted Citi would fail with its current high risk, over-leveraged business model.
Another fix of cocaine is a waste of time and money, but the sociopaths driving this train wreck aren’t doctors. Rather they are economic drug dealers, and they have the planet convinced that they just need to give the markets one more hit of drugs.
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