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Saturday, February 28, 2009

Citirgroup: Third Bailout Won't Be the Last

“Taxpayers are being ripped off. The only thing worse than nationalizing a bank is to pay for the entire bank and only get one-third of it.” -Congressman, Brad Sherman

Congressman Brad Sherman couldn't articulate the current debacle with Citigroup any more clearly. Why then aren't taxpayers absolutely livid? Why would they allow this to take place? The only probable explanation is that the vast majority of people really are so stupid, so ignorant and so apathetic they don't even know they're being raped.

Citigroup’s Third U.S. Rescue May Not Be Its Last, Analysts Say: "The U.S. government’s third attempt to help rescue Citigroup Inc. won’t stanch the company’s losses, which will continue to swell and may lead the bank to require more money in coming months, analysts said.

Yesterday’s action didn’t furnish the New York-based bank with new money, although it cuts expenses by eliminating dividends on preferred stock. Instead, it converted preferred shares into common equity, which absorbs the first hit in the event of further losses, at an above-market-value price of $3.25. The stock, which has fallen 78 percent since the beginning of the year, closed in New York trading yesterday at $1.50, its lowest since November 1990.

Vikram Pandit, 52, Citigroup’s chief executive officer, told investors yesterday that increasing tangible common equity to as much as $81 billion from $29.7 billion should “take the confidence issues off the table,” regarding the company’s ability to absorb losses. Still, Citigroup, which lost $27.7 billion in 2008, is expected to lose $1.24 billion in the first six months of 2009, according to the average of analysts’ estimates compiled by Bloomberg.

“There’s no difference here,” said Christopher Whalen, co- founder of Institutional Risk Analytics, a Torrance, California- based risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.”

One immediate change from yesterday’s announcement was that the value of the government’s investment fell by more than half. The government said it would convert as much as $25 billion of its preferred stock to common shares for a 36 percent stake in the bank. At yesterday’s closing price of $1.50, that investment is worth about $11.5 billion. Citigroup has a stock market value of $8.2 billion today."


Anonymous said...

This from a government that was only too happy to cut off even any suggestion of government assistance to the poor and the sick; or which would only grudgingly grant the most niggardly assistance, claiming that such help was "unaffordable".
Well such help sure isn't (and won't be) affordable, if wealthy bondholders have to be "made whole" first, particularly foreign bondholders, and for such huge amounts.
Funny how stoutly they could hold the line against the demands of the poor and weak: and yet how quickly they folded up, when the wealthy powerful and connected ask for $$.

Dave said...

"The only probable explanation is that the vast majority of people really are so stupid, so ignorant and so apathetic they don't even know they're being raped."

Sounds about right.

They'll start to get unruly if and when they can't buy beer and watch cable TV.

Lisa said... American's DO get it, and we aren't staying quiet anymore.

Anonymous said...

teach me how to express my anger in a format that will cause a change to this process. i don't see one.

tell me i am stupid. tell me i should be outraged. ok, prove to me acting on your request for outrage will do any greater good than just going back to my station in life and being a productive member of a society that may have failed.

Leo Kolivakis said...

Hi Ben,

Roubini commented stating that fully nationalizing Citi and Bank of America is better than partial nationalization:^dji,C,BAC,XLF,SKF,FAZ,DIA

If you want to understand the bigger picture, I urge you to read Michael Hudson's article in counterpunch, The Language of Looting:



Anonymous said...

What reasoned response is there for the plebs and proles that the (any) government will actually respond to?

I.M.O. It is clear that Arson, Violence, Riots and Revolutions are the only effective means of communication - but, are we quite ready for that??

Anonymous said...

Arson, violence, revolution?
We've been there and done that. And look where we are today.
As ever, the only solution is to work harder, and to love more.

Anonymous said...

The U.S.A. will never let Citigroup (a/k/a, Bank of Arabia) go bankrupt unless the American citizens want to see another oil embargo like the one in the 1970's.

Similarly, the U.S.A. will never let AIG, Fannie Mae, and Freddie Mac go bankrupt unless the American citizens want to see their Treasury-issued IOU paper have triple-digit coupon rates as the Chinese and Japanese won't get fooled again.

I say to all the Libertarians out there who want to let the financial system go down without a fight ... YOU ARE IDIOTS!

Anonymous said...

"The only probable explanation is that the vast majority of people really are so stupid, so ignorant and so apathetic they don't even know they're being raped."

That is correct.

In Niall Ferguson's book The Ascent of Money he cites a study that showed around 40% of Americans do not know what compound interest is. I low-balled this number as I'm recalling this from memory. The other stats from the study were equally shocking. So yes Americans are complete idiots when it comes to Econ/Finance. Yet these same high school educated idiots determine the future of the free world through the power of the vote.

Another blow to the enlightened electorate.

If I was king for a day I would suspend the vote for anyone not paying federal taxes or didn't at least have an associates degree.

We are all polishing brass on the Titanic.