The NYT, WaPo, Bloomberg, everybody is breaking their journalistic arms slapping Wall Street Timmy on the back for his decision to sell Citigroup for what he - and they - are calling a significant "profit". Pay attention to that word.
The Treasury said Monday that it planned to sell its 7.7 billion common shares in Citigroup over the course of 2010. It will gradually reduce its 27 percent ownership position through a series of stock sales to investors.
The government would earn a profit of about $8 billion if it were to sell its entire stake today. That would be on top of $8.1 billion in interest payments and other fees it has already collected, making Citigroup one of the government's most lucrative investments of the Troubled Asset Relief Program.
Citigroup Inc's largest shareholder, the U.S. Treasury Department, is planning to sell its 27 percent stake this year in what could become the biggest profit for the bank-bailout program.
The Treasury will dispose of its 7.7 billion common shares of New York-based Citigroup over the course of 2010 using a "pre-arranged written trading plan," the agency said yesterday in a statement. The Treasury's stake had a market value of $32.2 billion as of yesterday's closing price, for a paper profit of $7.2 billion.
The sale would finish the recovery of $45 billion given to Citigroup from the Troubled Asset Relief Program and bring the Treasury closer to President Barack Obama's goal of recouping "every single dime" of taxpayer money put into the bank-rescue fund.
The WaPo:
The Obama administration is making final preparations to sell its stake in the New York bank, according to industry and federal sources. At today's prices, the sale would net more than $8 billion, by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history.
(all emphasis added)
There's only one teensy itsy-bitsy problem with this language, as Dean Baker explains: Wall Street Timmy's deal shortchanged taxpayers to make his WS Buds filthier rich than they already were.
The logic of the...assertion that the profit on Citigroup stock validated the bailout is not clear. By making capital available to Citigroup at below market rates, the government effectively subsidized the income of Citigroup's shareholders. It also allowed its top executives to make millions of dollars because they were smart enough to be able to get taxpayers to subsidize the bank. The current market value of Citigroup is $123 billion, with only $33 billion belonging to the government. This means that the government has effectively given $90 billion (@ 25 million kid-years of health care provided through the State Children's Health Insurance Program or SCHIP) to Citigroup's shareholders and billions more to its executives by not demanding a market price for its support.
IOW, Timmy engineered a fire sale that gave Citigroup stock back to the bank's shareholders for considerably less than it was actually worth. So much less, in fact, that if this was a standard stock-swap, the SEC would be all over it accusing the parties of colluding in an illegal sweetheart deal. And it's not as if that was all Wall Street Timmy did for his Banker Buds. Oh, no.
It is also worth noting that the government has supported Citigroup through other mechanisms. The Fed created various special lending facilities that allowed Citigroup to borrow money from the government at extremely low interest rates. Since one of the main uses of this money was buying government bonds, Citigroup was essentially getting free money from the government. If it borrowed $200 billion at near zero interest and lent it back to the government by buying 10-year Treasury bonds at 3.7 percent interest, then the government was effectively handing Citigroup $7.4 billion a year for nothing. This money is not deducted from the Post's estimate of the government's "profit" on its dealings with Citigroup. (The Fed refuses to tell the public how much money it lent to Citigroup and other banks at below market rates.)
Seems like being a monumental failure can be mighty profitable. If you happen to have a BFF heading up Treasury. If not, you get reamed like we just did.
Again.
Does anybody out there know why this isn't a scandal?
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