Sunday, November 23, 2008

Citigroup: $100 Billion Bailout?

Good Afternoon Folks!

Just a quick note today. It appears that once again the financial world will be saved by another government bailout. CNBC is reporting that the government may buy $100 billion of bad assets from Citigroup. Here is the word from CNBC:

"Update: The government is looking to buy substantial amount of assets from Citi like a good bank, bad bank structure. The government will absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government.

The Feds could buy more than $100 billion in the bad assets if the plans go through. But that doesn't mean it will pay Citi $100 million. The deal is not finalized but could be announced tonight. Reports from Washington say the White House is unaware of any government talks with Citigroup. It also decline comment on whether President Bush would back a government rescue of Citigroup."

My Take:

We could hear the details as early as tonight. It will be interesting to see how the markets absorb this tomorrow if the government goes through with this. My guess is the financials could rally.

I think at some point the bailouts are going to start triggering selling versus buying. Investors are rapidly losing confidence in the financial system and the economy as a whole. This is what happens when a stock market loses 50% of its value. Many are starting to ask themselves "when is this ever going to end".

I am asking myself the same question. Citigroup has $2 trillion dollars in assets so this one probably had to be done. Imagine Lehman Brothers x10 if they went down. What scares me is as the the Feds balance sheet grows, and their ability to fund it becomes more and more difficult, what are they going to do? There is only one answer. They must stop spending or the bond market is going to dislocate.

My hope is that they understand this versus continuing to spend in a panic as the economy falls off a cliff. Bubbles must burst and this country needs to start becoming much more fiscally responsible so thet we can pay off this massive debt. The only way we do this is by higher taxes and less government spending!

The government at some point must send a message to the corporate world by saying no to a large bailout and letting someone fail. Ben and Hank know we don't have the money to continue and do this.

When that moment arrives and a big company fails, the markets are going to head into a tailspin.

Congratulations Pigmen! You sucked another $100 billion out of the taxpayers.


Anonymous said...

Jeff, you have a new friend in getting scared shitless: the government!!! LOL

Citigroup: Government Now Said to Have Cold Feet

Jeff said...


Hang on to your hats. This one might go down to the wire. CNBC has a special report at 9PM.

I will be updating any developments here. This is getting very interesting.

johndaniels said...

they still gotta bail out bank of america soon.

Anonymous said...

Meri-Death taking Citi apart:


Jeff said...


Been watching CNBC

You are right on. The concern the Fed has is if they take on Citi's bad assets that every other bank will want the same deal.

They are in a real bind here. My guess is they end up doing a capital injection which does nothing but slow down the bleeding and kick the can down the road.

What a mess

Jeff said...


Great article. I love Meredith. She is the best and has been all over Citi since this started.

She called the Citi dividend cut before anyone else.

Jeff said...

CNBC reporting a $10-20 billion capital injection into Citi by the Feds.

$10-20 billion on a $2 trillion balance sheet.

Pass the buck.

Kick the can down the road! This should hold them over for a week or too.

They just got $25 billion from the TARP a few weeks ago.

What a mess. Futures are flat and didn't react to the news. Hmmmm...

Anonymous said...

I thought they forgot one or two zeros. What a joke! Just a pure waste of money! Give that money to GM and they can survive - for the next six months. LOL

Jeff said...


No confirmation from Washington on CNBC's Gasparino's report.

I guess we will see if they get it done by the time the market opens.

Tomorrow will be very interesting.

Jeff said...

Boom...there it is folks.

$300 billion bailout of Citibank. Its official the world has gone mad.

Every bank is America is no going to want this deal. What a mess!

We may see a bounce tomorrow! My guess is the market might not like this by the end of the day. Thats a lot of money and smells of desperation.

I guess the words "Moral Hazard" have been forgotten in WAshington.

Hold on tight tomorrow. It could be a wild ride!:

"WASHINGTON – The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years -- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed."

Anonymous said...

The bailout flu has now spread to homebuilders.

Unbelievable and sickening!

Jeff said...


Unbelieveable isn't it?

I saw that earlier. As far as I am concerned the homebuilders can all dribe right off a cliff. They created this mess.

I guarantee they never see a dime. Taxpayers would have the government's head if they bailed out the very people who pushed them into foreclosures and BK.

This is what happens when you cross the line of moral hazard. Everyone wants their piece of the bailout pie.

This is all going to end very badly.