Think about it. You are a taxpayer and your tax dollars are absorbing the “losses” associated with write-offs of your debts (mortgage, credit card, auto-loan, student loan etc.) whether you pay or not! The reason for the toxicity of those assets the government is eating up is NOT because of defaults, it is because the paper is bad to begin with. In plain words, those debts are not enforceable because the securitizers and investment bankers didn’t follow the rules and intentionally defrauded both the investors who put up the money and the “borrowers” who were in actuality the unwitting parties to a scheme to issue unregulated securities under false pretenses. Unless the “bailout” goes to the actual victims of the fraud instead of the perpetrators, how are we ever going to show our faces in the world financial markets again?
The Rescue of Citigroup
By JOSEPH SCHUMAN
THE WALL STREET JOURNAL ONLINE
Too big to fail and increasingly desperate as investors fled its shares, Citigroup last night agreed to be rescued by the troika of agencies that have been gathering the U.S. financial system under a government umbrella in these desolate times.
The Federal Reserve, U.S. Treasury and Federal Deposit Insurance Corporation late last night unveiled the rescue of the banking giant, a “package of guarantees, liquidity access, and capital” aimed at stabilizing financial markets and reviving the faltering economy.
In part the package marks a return to Treasury’s focus on the troubled, mostly mortgage-backed securities that have encumbered Citi’s balance sheet and those of other banks and that were the original target of Washington’s $700 billion bailout measure. Citi will have to absorb the first $29 billion in losses on what the bank and agencies calculated to be a $306 billion portfolio, and taxpayers would be responsible for losses after that. In exchange, Treasury and the FDIC will get $7 billion in new preferred Citi shares that come with a dividend of 8%.
Treasury will also give $20 billion to Citi for additional preferred shares, and in turn attain authority over how the bank compensates its executives and Citi’s compliance with an FDIC program to help homeowners with troubled mortgages. This would come on top of the $25 billion in funds Citi received when it and other banks accepted government help this fall. Last night’s announcement, though later than planned due to hitches in the negotiations, was the latest aimed at preceding global markets’ weekly open. And though it concerned just one company, the ramifications of Citi’s travails would seem to make the deal mark another milestone in this season of bailouts. “If the government’s rescue plan is a success, it could help bring stability to the entire financial system,” The Wall Street Journal says. “If it doesn’t, even deeper doubts about the industry’s future could spread.”