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Is the superfund still necessary?

Marketplace Staff Dec 3, 2007
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Is the superfund still necessary?

Marketplace Staff Dec 3, 2007
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TEXT OF INTERVIEW

Scott Jagow: We learned last week that Citigroup would get a badly needed cash infusion: $7.5 billion from the Arab emirate of Abu Dhabi. But Citigroup is one of the three banks involved in the so-called superfund. That’s the pool of money that would help save the banks from their disastrous investments in mortgage-backed securities.

Allan Sloan from Fortune Magazine: If Citigroup can raise a bunch of money on its own, why does it need a superfund?

Allan Sloan: Scott, you’re just naive. Clearly that’s the case. When these companies really have to raise money, they manage to find a way to raise it. That’s the answer, that’s what’s so amusing about all of this, and also sort of reassuring. It’s good to know that there’s someone willing to put $7.5 billion into Citigroup.

Jagow: So does this mean that the superfund is no longer needed?

Sloan: By my definition, it was never needed, because the idea of the superfund is there are all these strange securities that Citi and some of the other big banks have had off the balance sheet, and they supposedly can’t sell them for a fair price, so you needed the superfund to sort things out. Now it’s needed less than ever, but I’m sure they’ll do it anyway because there’s a dollar in it for somebody.

Jagow: But let’s be clear about this: Is this superfund going to be comprised of taxpayer money?

Sloan: No. The superfund would come entirely theoretically from other companies. It would not come from the government. But the reason I kept calling it, you know, government help is people’s heads were being banged together by the Secretary of the Treasury and the whining about how we can’t get a good price out of the markets, and that’s why we need a superfund, that’s what really annoyed me. When you and I want to sell a house, and I think it’s worth a million dollars, and the market thinks it’s worth $720 [million], no one’s going to help me because I think the market’s crummy.

Jagow: But if the superfund isn’t comprised of taxpayer money, why do you care if there is a superfund?

Sloan: I don’t care if there’s a superfund. What offended me was the federal government getting together with a batch of other people to create a superfund for the benefit of a handful of organizations like Citigroup that didn’t want to deal with the market in what they call their SIVs. But the fact is that this money from Abu Dhabi, and all this other money, may make the superfund moot. I suspect it’ll be created anyway, but it’ll make it moot, because Citi’s survival would appear to be assured by taxes to money from Abu Dhabi and elsewhere.

Jagow: All right, Allan Sloan from Fortune Magazine. Thanks as always.

Sloan: You’re welcome, Scott.

Jagow: In Los Angeles, I’m Scott Jagow. Thanks for listening, and enjoy your Monday.

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