Citigroup Bailed Out

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CITIGROUP BAILED OUT….The feds have finally agreed on a plan to bail out Citigroup. The Wall Street Journal has the details:

Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. — will take on any additional losses, though Citigroup could have to share a small portion of additional losses.

….In exchange for that protection, Citigroup will give the government warrants to buy shares in the company. In addition, the Treasury Department also will inject $20 billion of fresh capital into Citigroup. That comes on top of the $25 billion infusion that Citigroup recently received as part of the the broader U.S. banking-industry bailout.

….The government didn’t require Citigroup to make changes to its executive ranks or its board in return for government assistance. However, Citigroup agreed to “comply with enhanced executive compensation restrictions,” the government said Sunday, and also will implement a government-backed plan to modify distressed mortgages that is designed to curb foreclosures.

First take: this appears to be a pretty sweet deal for Citi: $20 billion in new capital and a potentially huge asset guarantee, all at what looks to be a pretty small price. My guess is that the distressed mortgage stuff and the “enhanced executive compensation restrictions” are little more than window dressing, and considering that the feds are handing over $20 billion to a company whose entire market cap at the moment is around $20 billion, the preferred shares they’re giving up in return are a good deal for Citi unless they pretty much wipe out the equity of its current shareholders. And since the New York Times reports only that the shares “will slightly erode the value of shares held by investors,” it looks like Uncle Sam isn’t getting anywere near enough to do that.

What else? The government is guaranteeing 90% of all losses above $29 billion out of a $306 billion pool, which means that Citigroup now has about $250 billion in government-guaranteed assets in that pool. Presumably this can be turned into cash at a very favorable rate indeed, which should do wonders for Citi’s liquidity.

So that’s that. But I guess I have one more question. Up until a couple of days ago, Citigroup was insisting that they were very adequately capitalized, thankyouverymuch. But tonight they accepted $20 billion in fresh capital. So either (a) their position deteriorated a lot in the past 48 hours, (b) the government’s terms were so spectacularly generous that they figured they’d be stupid to turn it down, (c) Paulson insisted they take it even though they didn’t want it, or (d) they’ve been lying. Which do you think it is?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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