2
Another bailout for Citigroup
U.S. President George W. Bush (left) shakes hands with Treasury Secretary Henry Paulson (right) after making a statement to the news media after a meeting at the Treasury Department -- November 24, 2008
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF INTERVIEW
Scott Jagow: The other big story this morning, of course, is Citigroup. Citigroup has more than $2 trillion tied to banks and businesses around the world.
And by the government's thinking, that is way too big to fail. So last night, the Fed, the Treasury and the FDIC outlined a plan to rescue Citigroup.
Marketplace's Steve Henn joins us now from Washington. Steve, how are they going to do it?
Steve Henn: Well, you know, as you probably remember, back in October, Citigroup received a $25 billion investment from the U.S. Treasury. Today, the Feds are basically doubling their stake, investing another $20 billion. But the real value for Citi isn't that cash, it's that the U.S. Treasury and the FDIC and the Federal Reserve have agreed to guarantee more than $300 billion in potentially toxic Citigroup investments, just in case those investments go south.
Jagow: So the government would buy up those assets? That sounds kind of familiar -- this is along the lines of what Paulson had in mind in the first place?
Henn: It's really similar. The government isn't actually buying up the assets here, it's just guaranteeing the assets against future losses. But the end result is the same -- the risks to Citigroup are reduced because the Treasury and the FDIC and the Federal Reserve are going to bear those risks. The thing that's different is the numbers involved here are just huge. I mean, just for this one bank, the Feds are going to be on the hook for $300 billion. The original bailout package was $700 billion.
Jagow: And if we're going to be on the hook for, you know, this amount of money, what's in it here for the taxpayer, for the customer?
Henn: Well, Hank Paulson was under a lot of pressure when he spoke to Congress last week about what he was doing for borrowers and what he was doing to stop foreclosures. And as part of this plan, the FDIC is going to push Citi to renegotiate mortgages. Now, this is a plan the FDIC has tried with other banks, and it's gotten a lot of positive reviews, both in Congress and from consumer groups.
Jagow: Marketplace's Steve Henn in Washington. Thank you.
Henn: Thank you.
It is another band-aid solution and deals being worked out over the weekends - the familiar story. I am in favor of no handouts to nobody, including the big 3s without a clear-cut plan. The Fed is guaranteeing the $300 billion toxic assets of Citi - but, take my word that Citi is neither going to renogotiate the mortgages nor feel more inclined to lend. They will do some window dressings in that aspect. Take my word to the bank (the word itself sounds funny to me!) on that. All the institutions, including big 3s are just bloated. Realism needs to sink in on us the consumers - we need to save more and get away from the era of free and cheap credits. Live and spend within means.
I see Henry Paulson and his buddies in the government are now showing their true colors. Citigroup is considered too big to fail because of the amount of money the "system" would lose if it did indeed go down the tubes. Whereas if the Big Three were to go under, the only loss would be 3 million jobs. And they say money isn't the root of all evil.
