One of the world's largest banks fell off the wall and broke yesterday.
Instead of sweeping up the mess, the king's men continue to try to put it back together again. That means you and I and every holder of U.S. Treasury securities get taken for a ride.
My reading is that the U.S. Treasury signed up for liability of about $250 billion of Citigroup; whereas the dopes who made bad investments retain about $50 billion in liability.
Some thoughts on this bailout:
1) Citigroup's common stock rallied on the news. I firmly believe that the government should stay out of this mess, but I recognize I am in the minority living in a democracy. If, however, we the people are going to bail these punks out, it should be an absolute precondition that the equity holders get wiped out. On Friday, the stock was worth zero; today it is worth slightly more than zero. Shareholders got a better deal than they deserve, but those who buy this rally are fools.
2) A condition of the deal is that Citigroup cannot pay more than $.01 each quarter in dividends. This means they can give out over $200 million per year to shareholders, and I am sure they will. It's a scam people. We are being punked. Taxpayer money is not going to sure up the financial system; it is going to limit the losses of the people who messed up the financial system.
3) I keep reading that allowing Lehman Bros. to go into bankruptcy was a mistake that cannot be repeated. The opposite is true. Allowing Lehman's failure to run its course is the only bright spot on the king's men's resume. Of course, there were reverberations from it. Of course, people lost money. People are supposed to lose money when their business fails. The reverberation from propping these failures up is much worse, though often unseen.
4) Most of the liability assumed by taxpayers for this bailout falls outside the lines of the $700 billion bailout that Congress passed. In fact, $700 billion is fast becoming inconsequential. Taxpayers will ultimately lose trillions, and all of it will happen without so much as a peep from Congress.
5) The world does not need Citibank. I am repeatedly baffled by the lack of imagination on the part of the economic commentariat. Of course they are an important piece in the current economic makeup; they provide a lot of important services. But we don't need the current economic makeup and it may not even be the best option. If Citibank goes away, we will not be left with a gaping hole. We'll be left with other, better banks competing to fulfill the needs of society. No cog is vital to an economy.