Sunday, November 23, 2008

TARP Money and Asset Guarantees for Citigroup

In a timely example of economic capacitance, Citigroup is crashing and burning. Over the last week, despite protests of adequate capitalization, it's stock values are in their final death throes. Admittedly, it probably would be an unwieldy FDIC seizure, so Citibank will be getting an additional $20B in TARP money in exchange for handing the Treasury Department preferred shares at 8%; and in addition Citigroup will pay them $8B for loan insurance on $300B it holds in troubled assets.

It was barely over a month ago that Citigroup was fighting with Wells Fargo over the right to buy Wachovia. How times change. Now, the terms of the FDIC seizure of Wachovia were so favorable for Citigroup that who knows, it might have allowed them to persist a little longer. But that wasn't to be. Their options have run out. Government bailouts I suppose are the last and final leg of economic capacitance.

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