The U.S. government has agreed to guarantee over $300 billion of Citigroup’s troubled assets — loans and securities backed by residential and commercial real estate and other such assets — with conditions attached. These conditions are being hammered out.
In addition, the U.S. Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred shares with an 8 percent dividend. Citigroup will comply with enhanced executive compensation restrictions and implement the Federal Deposit Insurance Corp’s mortgage modification program. This is on top of the $25 billion that the government gave Citi in October.
But how dare the automakers even think about asking for $25 billion. Why in the world would we bail out all those blue collar workers, when these white collar workers need a life line?
Paul Krugman isn’t thrilled about this bailout either, even though it was necessary:
Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.
The Bush administration is simply giving away our country now. There was no conditions tied to this bailout to open up credit markets, or for the company to even restructure. The CEO and other chief officers that get Citigroup into this mess get to stay. It was a handout, not a bailout.
Update
Robert Reich weighs in also:</p>
This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.
Meanwhile, more than a million workers in the automobile industry, along with six million mortgagees, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.
“The American public, including the media, have not the slightest clue what just happened” – that is an understatement.
The frozen credit markets are creating a snowball effect. Take the auto industry. The obvious is that people can’t get loans to buy new cars. The not so obvious is that the auto industry (and countless companies) rely upon credit to pay the bills and make payroll. Now they can’t take out the loans. TARP was supposed to open up the credit markets, but it hasn’t. Instead the Bush administration decided to try other things, and has made the situation that much worse. In other words, we are sailing into the abyss and have no one at the helm.