Wednesday, November 26, 2008

Citi is Saved, Not Delivered

Citigroup went on life support and Paulson got the subprime slush fund that he sought nearly two years ago from among others Citi itself, to buy up the radio active waste, necessary to keep the ponzi finance scam rolling along. The idea behind that was to get the biggest banks to buy each others junk, that no one else would, a ponzi scheme within a ponzi scheme it never took off, but now Hank has the power of the Federal Governments infinite debt base and the FEDs printing press behind it and so those toxins no one else will touch can be dropped onto the FEDs steadly swelling balance sheet. The only blow back is an insolvent nation and hyper inflation, but it's a small price for small folk to pay to keep the greedy, well connected elite in the lavish life styles to which they are accustom.
The U.S. government’s emergency rescue of Citigroup Inc. offers a new model for bank bailouts: explicitly insuring against losses on toxic assets, with taxpayers footing the bill.

The Citigroup plan extends the federal commitment beyond the previous framework of capital injections from the Treasury and credit from the Federal Reserve. Now, the U.S. is a partner in the performance of $306 billion in real-estate loans and securities, sharing losses beyond $29 billion on what are likely to be some of Citigroup’s worst holdings.

“Everybody and his brother has got to have their hand out now,” said Eric Hovde, chief investment officer at Hovde Capital Advisors, which manages $1 billion in financial-services stocks. “The whole problem is so much bigger and deeper than the Fed and Treasury ever understood.”
Well Eric that's everybody and his brother has who has a nine figures before the decimal point net worth and the letters NWO branded on their forehead, but you've got the idea. Of course the burst of the credit bubble has got a lota folks just downright upset and they have a crazy way of seeing things.
Critics have accused Citigroup of taking too many risks. At this point, is there any amount of mismanagement that would disqualify Citigroup or any other financial firms from receiving taxpayer money, or does any large firm qualify for any amount of assistance that it might need? The bailout has other strings attached; the firm agreed to cut dividends and limit executive compensation. But at some point, should the firm's managers, directors, and shareholders be sent packing altogether?

What; why isn't everybody just all holiday cheery about things? Maybe it's the dangling dead weight of $249 billion weighing the good times down.
Taxpayers are conceivably on the hook for 90% of ($306 billion - $29 billion), in other words about $249 billion. But where does this money come from? Congress did not appropriate $249 billion for this.

This bailout represents a huge taxpayer risk. Yet it's important to note that not all of the collateral will go bad. The percentage that might go bad depends on the valuation and selection of assets.
Ok Mish it might not all blow up, but you better than most know not to bet on that. Actually we may have had a chance to make it work right a la the Swedish "good bank" and " bad bank" model, but that chance is gone and that maybe what the Citi bailout is all about. What Sweden did during its banking crisis in the 90's, called a Securum was essentially a partial nationalization which kept the banking operations going, but took a bite out of the fat cats. But Paulson proposed the TARP instead and went too far down that road before realizing it was a dead end. That was when he announced that was would not pass out anymore bucks, but never said why. This is why!
Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.

The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today -- with a black hole of negative net worth that would swallow Paulson's entire $700 billion in one gulp.’

That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.

That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the 'troubled' assets.’ That is what the latest nationalization of Citigroup is about.
Whatever this deal is about it is neither a full bailout nor implosion, but a full blown first desperate waste of workin stiffs billions. With Citigroups credit cards defaults picking up, the over leverage, known and unknown rotting on its balance sheet and the credit crisis setting in even deeper in 2009, whatever all the kings horses and men cook up will most certainly go down in flames.
A day after US taxpayers saved Citi's bacon for the second time, analysts are already talking about the next steps the company needs to take if it is to survive.

While the government deal bolsters Citigroup's capital ratios, "we are concerned that losses may eventually exceed the government's backstop," said Standard & Poor's equity analyst Stuart Plesser.
What Stuart Plesser means to say is that he is absolutely certain that losses will eventually exceed the government's backstop, and so should you. You should be absolutely sure that there will be a second and third bailout attempts, but for as many as there will be, they will fail one and all. Just as Mish long ago predicted this behemoth will not survive with it's current high risk, over leveraged business model, the model which took it from the biggest bank on the planet to one on the brink, on life support. Which means that leveraged reckless speculation can build bad assets faster than all the bailouts put together can bail it out which means that and any new fangled, derived short term credit crack fix will transfer the patient from intensive care to the morgue, which means that it would better to shoot the patient yourself than prescribe any those measures that served to put the bank in its condition.

More crank is a waste of time and money, but in the sociopathy of the elites driving the train wreck it is exactly what will be prescribed.

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