A voice against the Citigroup bailout
TEXT OF INTERVIEW
Scott Jagow: Citigroup dug itself an enormous hole. I mean, a Grand Canyon-size hole of toxic assets. And Citigroup is probably the poster child for too big to fail. So, the government is gonna pull Citi right out of that hole. The Treasury, the Fed and the FDIC — they have a bailout plan: Here it is: Invest another $20 billion in Citigroup. Force the bank to help struggling homeowners. And here’s the big one: the Treasury will assume the risk for $300 billion in toxic assets.
We’re joined by Jane D’Arista from the Financial Market Center. Jane, what do you think of this plan?
Jane D’Arista: Well, I’m not happy with the $300 billion guarantee. I’m not happy with the plan — I think it does indicate how lax they were in oversight at the Fed to have, after all, proposed that Citibank buy Wachovia not so long ago. I think that taking the guarantee is an enormous amount of money.
Jagow: With this $300 billion, how likely is it, based on what you know, that the government will have to eventually buy these assets?
D’Arista: Definitely. That’s the point. They’re going to have to buy them if they give a guarantee.
Jagow: All of them? All $300 billion?
D’Arista: Well, who knows? I mean I just don’t believe that this is the path for Citibank to get back on its feet.
Jagow: Then what is the way Citigroup gets back on its feet?
D’Arista: It gets back on its feet only if the Fed is willing to buy some portion of its and other banks’ and other important institutions’ toxic assets and give them in exchange a reserve account at the Fed that will be on the liability side of their balance sheet and act as a substitute for capital. Capital is not there, and we are looking at a meltdown in the capital of the financial system.
Jagow: And the Treasury can’t do that?
D’Arista: No, the Treasury cannot do that.
Jagow: What happens if we don’t do anything here, and Citigroup fails?
D’Arista: It would be an enormous displacement in the financial sector. It is a domino situation, and they know it.
Jagow: Jane D’Arista, director of programs for the Financial Market Center. Thanks so much.
D’Arista: You’re welcome.
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