Monday, November 24, 2008

The Citigroup Bailout: The Scam Continues

To no one's great surprise, the Treasury is going to help bailout Citigroup as announced today.

President Bush said he and Treasury Secretary Henry Paulson share concerns with citizens about jobs and savings, and safeguarding financial systems -- like giant banker Citigroup -- is the best way for the economy to recover.

Bush said he spoke with Paulson while flying back from Latin America and agreed that a bailout of Citigroup was necessary.

"We've made these kind of decisions in the past, we made one last night and if need be, we're going to make these kind of decisions to safeguard our financial systems in the future," he said. Overnight, the Treasury Department announced an emergency bailout of Citigroup, which is getting $306 billion in loans and securities of its residential and commercial real estate and other assets in exchange for preferred shares of its stock being submitted to the Treasury and Federal Deposit Insurance Corporation.

In addition, the Treasury announced it is investing $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock. Citigroup will restrict enhanced executive compensation and implement the FDIC's mortgage modification program.

What should be stunning and scandalous is that much of this particular bailout will come outside the scope of the $700 billion bailout ratified last month for financial services companies. That the Treasury is planning on finding new funds to bailout Citigroup has enormous ramifications for the bailout and our financial system as a whole.

In fact, the massive bailout was supposed to avert exactly what is happening right now to Citigroup. That it didn't speaks volumes for just how impotent it is turning out to be. Second, if much of the money going to Citigroup is coming outside the initial bailout, where exactly is the bailout money going to? Is all of the bailout really going to something more urgent than saving Citigroup? Keep in mind, the Hartford, currently perfectly viable, is one of the companies currently applying for the bailout.

The scandal of what has occurred is unspeakable. Are the Feds really saying that a major bank suddenly on the brink of going under was something unforeseen a month ago when they asked for the initial bailout? Are the Feds really saying there is absolutely nothing available in the $700 billion to keep Citigroup viable while it restructures? Where has it all gone? If bailing out a major bank so that it doesn't collapse wasn't the intention of the $700 billion bailout, what was? Furthermore, the Feds are even saying that further bailouts maybe necessary and presumably these companies will also get money outside the scope of the initial bailout. So, where did it go and how did it happen that a $700 billion bailout has become woefully short? Why is no one out there explaining how all of this happened?

The tax payers have been scammed in a $700 billion boondoggle. It's clear that the $700 billion is NOT being spent in any productive, constructive, or efficient manner. It appears that a perfectly viable company like the Hartford can apply for funds while a company on the brink like Citigroup needs funds outside the scope of the $700 billion bailout. Does anyone believe the money is being spent efficiently? The taypayers were sold a bill of goods. They were told that troubled assets were going to be bought and possibly sold later at a profit. They were told that this was necessary to stop a disaster. They were told that the whole financial system would collapse without it. None of that is true.

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