CitiBank - No Questions Asked

When the Big Three automakers were finally settled in their chairs before the Congressional committee investigating whether they deserved a handout of $50 billion, they were asked a defining question; “How many of you flew commercial airlines to get here?

No hands went up and they were sunk. Somehow the hubris of trotting about on private jets while asking for public money was simply too much for a suddenly stingy Congress.

No such questions were asked of the Citi bankers, in fact no hearings were even held, and they were given access to over $306 billion on the most favorable terms you could possibly imagine. This illustrates the power that the banking industry holds over our political process and it is a ruinous power. Why should Citi receive not only special treatment, but exorbitantly preferential treatment at taxpayer expense? I don’t know, but I’d like some answers.

First, check out the terms of the deal:

Citi's Taxpayer Parachute
Another Sunday night, another ad hoc bank rescue rooted in no discernible principle. U.S. taxpayers, who invested $25 billion in Citigroup last month, will now pour in another $20 billion in exchange for preferred shares paying an 8% dividend.

Taxpayers will also help insure $306 billion of Citi's mortgage-backed securities. Citi will cover the first $29 billion in losses on these toxic assets, and then taxpayers will cover 90% of the rest, in exchange for another $7 billion in preferred.

What’s so special about this deal? First, the next $20 billion only provides taxpayers with an 8% yield. This is well below current market rates and, as such, represents a giveaway. I would guess that the cost of capital for Citi should be in the vicinity of 15% (or more) right about now.

So $10 billion of that $20 billion is pretty much of an outright gift. Second, I am concerned about how the toxic assets have been valued when setting this deal. The fair way to do it would have been to mark them to market forcing Citi to eat the losses that are already baked into those assets.

However, the implication in every article I’ve read is that the Citi “assets” were valued at their full cost (not value). This means that they are overvalued by some 30%-50%, almost without a doubt.

But that’s not the worst of it. When I dug into the Treasury Department website the terms of the deal said this:

Treasury Statement on Citigroup
As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

This is the most staggering giveaway I could have possibly imagined. To understand why, let’s review the definition of a non-recourse loan:

A nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance

This means that when, not if but when, Citi defaults on this loan there will be no mechanism for recourse for the taxpayers.

Why am I confident that Citi will default on this particular rescue loan? Because they are smart people and paying it off would be stupid.

The $300 billion of “assets” pledged as collateral for this loan are worth, perhaps, half that. Possibly as little as 10% if Citi has done its job and purged the worst of the worst from its balance sheet to tuck into this sweetheart deal.

So it's very simple. Either Citi makes good on the loan and repays all $300 billion and then takes possession of perhaps $30 billion of damaged assets or it defaults and keeps $300 billion.

What would you do?

I am, again, more than a little angry at this deal. It seems that when productive industries or actual citizens are involved, money is hard to find and difficult questions are asked. When banks need the cash? The results are enormous, immediate, and exceptionally favorable.


This is a companion discussion topic for the original entry at


I wonder if SNL is going to have the guts enough to poke fun at this???

Maddening. They get:

  1. The houses
  2. The cash
  3. The safety net
We "the people" get:
  1. Depreciating property values as a result of distressed comps (51% of ALL sales this past month were distressed up from 16% a year ago)
  2. Higher taxes as a result of lost tax revenues
  3. Higher taxes as a result of having to bail out stupid business decisions
  4. And those who lost their homes because of a contracting economy (and lets be real, since August 2008 OVER 50% of foreclosures are PRIME NOT subprime) get to be homeless
  5. These "Bail Outs" wont work, this will only prolong the mess and excerbate the problem
Sounds pretty American to me? I say toss the CEO's out in the street, seize their homes and their assets and give them to the people. Bottom line, you screw up the banking industry - then you pay for it, not me and my kids and my kids kids.
Congress is screwing up by not setting a good example, they are rewarding the brain dead with our money.
Those in Congress voting for this insanity should lose everything. Dr. Bartlett is right, "our" (and I use that loosely I wouldn't vote for this crap) solutions make our problems WORSE!
Even worse, they get the safty net when hyperinflation happens, us regular people get the soup lines or worse, they get to live the life of kings.
All hail the bankers!
By the way, how can I incorparate myslef and become a bank holding company???? Oh yah I am honest, sorry.

I just wonder how long before the American people take to the streets. Where is the outrage? Here’s an idea for a plackard- picture of a cute five year old kid followed by the inscription "JUST PUT IT ON MY TAB HANK"Cheers,

“We had a good country and they ruined it.” --Icelandic citizen

(picked from the Revolt in Iceland forum topic)

Other countries will be joining this painful sentiment…

These deals are not because of the incompetence of the unelected bureaucrats dealing with this stuff. (In any case, elected, unelected, same thing at the end.) This is by design. I bet that Citi lawyers wrote the terms, no negotiation involved whatsoever. The bankers own this country.

No questions for CitiBank, but I do have some for everyone: when will we make our voices heard? When will we form a movement? Can we? Under what principles and objectives? Are there others out there reading this forum that also think that organization is important or possible? After we raise awareness, what is next?


As I have said many times here, set a date, and STOP MAKING PAYMENTS ON YOUR DEBTS!

I think they were panicked (Paulsen and Bernanke et al) and just threw together whatever they could over the weekend to have something in place that might, just might, help the markets on Monday and keep Citi from going under this week. It lacked insight, thoughtfulness, and any kind of indication they have a realistic grasp of the troubles facing the global economy.

I think Citi is a little bit different because although they are a U.S. based company, they hold enormous global assets, liabilities, and toxic debt. If they fail they will significantly impact the global economy and probably cause a horrible domino effect which hurts many other countries even more than it hurts the US. The US is already being held responsible for the economic crisis worldwide (whether or not rightfully I don’t know… it seems to me other financial systems made the same poor decisions we did, and eagerly bought up the same toxic debts our institutions did, even though the toxicity did arise in the US).

I think in their minds there was no time to craft a better deal. And they are probably right - they should have predicted this and could have predicted this but instead they buried their heads in some wishful non-reality based interpretations until the building had already burnt halfway to the ground.

Maybe its the lame duck administration, doing nothing more than being extremely reactive, no proactivity whatsoever, thinking they’ll dump the whole mess in the laps of the next administration come January. But things are moving too fast for that.

Agreed. Wholeheartedly. In the last week I’ve asked the following question of many friends and family: "Why is it that Americans across the country march in the street to protest a vote by the majority of Californians banning gay marriage, but we sit idly by as the political establishment robs us blind?" The answers to my question. Dumbfounded stares.

People in this country have not a clue as to what is being done to them. Unless and until there is some John Galt-esque broadcast to the people they will remain clueless. While I am not a proponent of violence, one has to wonder when such a proponent will have had enough and start the burning, or the shooting in order to stop the looting. When is enough, enough?

Don’t forget about CitiBank Park, the new home of the NY Mets. It’s costing CitiBank (us) $20 million a year for the naming rights.I wonder how many jobs you could keep with $20 million? I did a search on "Federal Reserve families" and was amazed, the families are so intertwined with the various federal banks around the country. Now I know why they receive such preferential treatment.

I think Gold Digger hit the nail on the head. I use iGoogle (Big Brother) for news, and it pulls RSS feeds in faster than Bernanke can print funny paper. The food from the blogisphere is like food from Whole Foods and the crap that the mainstream "reports" is like glued together processed chicken from a fast food joint.
I’ve watched news clips from around the world on the net and from the U.S.
What am I saying: Americans will be mad and I’d bet they won’t even know who they should be mad at. The guilty won’t hang. The innocent will likely hang each other instead. Like Menscken said, "No one ever went broke underestimating the intelligence of the American public." Sad, but sorry to think, true.

I really feel this has come to the point where the mainstream financial and non-financial press are just downright negligent.

As a private investor, this deal is just so crystal clear to me that it hurts: Taking out a non-recourse "loan" pledging assets that everyone knows are worth less than face value is simply not a loan. It’s a handout disguised to confuse the average non-financially minded American into thinking there is an intention of repayment when obviously there is none.

This transaction is a purchase of assets for way more than they are really worth. Nothing more, nothing less. This sale that undermines the best interests of the people is being disguised as a loan because the word loan suggests an intention of repayment to the average joe.

At the risk of saying something controversial, Citi’s executive management can and should be sued by their stockholders if they were ever to do something so profoundly incompetent as to repay any part of this sort of "loan". To do so would be stupid, as Chris said.

It just blows my mind that they use the neuro-linguistic programming technique of reframing so regularly and successfully. This loan is as much a loan as the liberation of Iraq was a libreration. Call it the opposite of what it is, and people buy your story. The primary job of the press is supposed to be to see through this fraud and report with perspective on what the true implications are.

Chris, I’d like to offer you a free gift of one million dollars, today! No strings attached whatsoever, except that I’d like to structure this "gift" from me to you in the form of you paying the money to me. Fair deal? I mean hey, it is a free gift. I just said it was, so it must be. Don’t let the minor detail of you having to pay me distract you from this generous offer of a free gift, ok?

I just can’t believe this is happening in America. I really think the way that our press has come to compete with entertainment is a core cause of the rapid decay of this nation.

Erik Yell

We neeed someone who has both popular clout, intelligence, and is outside the system to start and stage a "March on Washington". In 1970 we marched on the Pentagon to stop a war; you’d think someone would have the wherewithal to organize a march to prevent the financial destruction of working Americans.



Sheer lunacy . . .


Treasury, Fed to Unveil Major Consumer Lending Program

Tuesday , November 25, 2008


Treasury Secretary Henry Paulson, seeking to ease strains in the consumer credit market, plans to announce Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards, according to people familiar with the matter.

The lending facility, which will be operated by the Federal Reserve, is expected to provide loans to investors who want to buy securities backed by credit cards, auto loans and student loans, these people said. Treasury will contribute between $25 billion to $100 billion to the facility from its $700 billion Troubled Asset Relief Program.

The program is aimed at making it easier for consumers to borrow money. Government officials, including Mr. Paulson, have grown concerned about "distress" in the consumer finance market, as the availability of household loans has ground to halt amid a broader credit crunch.

While the initial focus will be on consumer loans, the facility could eventually be expanded to cover all manner of assets, including mortgages.

Treasury had initially planned to use its $700 billion to buy those types of assets itself but changed plans two weeks ago, deciding instead to concentrate on pumping money directly into banks and other financial institutions. Treasury has set up a $250 billion program to invest in banks.

While the government had hoped to see banks lend that money out, that hasn’t happened as quickly as they would have liked. Treasury is trying to find other ways to jump-start the market for lending.

Someone needs to put the paper trail together and make a connection that the media (and the general public) can grab onto. This giveaway needs to stop yesterday! I have never been this angry in my life!

And if you weren’t mad yet, how about the government guaranteeing Goldman Sachs bonds?

Not too hard to figure out who is benefiting there.

What is Paulson so afraid of that he and Bernanke are willing to risk doing deals in broad daylight that are so patently communistic/exploitative in order to make sure certain banks don’t go down?

What would the world learn if Goldman Sachs went down and the books were opened?

There is one voice being given air time. Peter Schiff. Problem is, he’s treated like a kook. I’ve been labeled a pessimist, cynic, chicken little in the last couple months, but I’ve not given up. And, its not because I want to be able to say "I told you so", or make a buck. This is insane, but no one wants to hear it.

Even if you’re not interested in watching the clip in the link below take a minute or two to page through the many comments. People are starting to get it. And, the ones who don’t, are starting to ask questions. There is some hope of an awakening albeit not one that will not occur in the mainstream media.


That is so well said, I have to thank you.

If you’re not writing for some publication somewhere, you should be.



If you haven’t already, you can add Max Keiser to your short list–though you have to watch Al Jeezera English to access him. If you don’t know him, he is of the caliber of Nouriel Roubini and Peter Schiff; in fact, you could say he is a combination of Roubini, Schiff, Dave Letterman, Columbo, and Rambo. (check out the videos (100’s of them on Youtube) that are linked to at the bottom left of the page…

Thanks for the tip. I had earlier made a note and stuck it in my pocket to search Max Keiser when I’m home tonight and not "at work".

And, please note, its "Goal" Digger. A reference to my hometown’s once glorious days of minor league hockey. I’d hate to be known as a "Gold" Digger.

And where does this money come from? Even the NPR reporter tonight had it right: "The NY Fed is just creating it, just printing it." And of course the NY Fed will do just as good a job removing this $700bn from the money supply when conditions change for the better.Wink

We neeed someone who has both popular clout, intelligence, and is outside the system to start and stage a "March on Washington". In 1970 we marched on the Pentagon to stop a war; you'd think someone would have the wherewithal to organize a march to prevent the financial destruction of working Americans.
If you said this to most Americans, I bet you'd almost universally hear them say that this is what they thought they were getting with Obama, but then he goes and says this sort of stuff: