Bailout III: Citigroup About To Be Nationalized
This horror movie keeps getting worse. This morning's New York Times details how Citigroup, under CEO Charles O. Prince III and Robert E. Rubin, took on too much risk in search for every growing profits, only to find the whole enterprise crashing down around them when those risks proved excessive.
What's ahead? My Washington banking sources expect a backdoor nationalization of Citigroup, possibly before 6 p.m. today, when Asian financial markets are poised to hammer Citi stock from $4 to far less 90 minutes from now. That after Citi fell from a 52-week high of $35 in early December, 2007, to its Friday close of $4.
Nationalization of Citi would probably include the injection of billions of dollars more from the Troubled Asset Relief Program (TARP), on top of the $25 b. Citi has already received. Citi is too big to fail. Over half of its deposit come from foreign investors. Thursday, Saudi Prince Alwaleed bin Talal upped his stake in Citi from 4% to 5% in an effort to stave off a bank run. Monday, Citi announced more layoffs, bringing the total to 75,000 out of a total workforce of 375,000. Unfortunately, this probably won't be enough.
Taxpayers are going foot the bill in the end. The trouble is finding the end after bailing out Bear Stearns, Fannie Mae, Freddie Mac, AIG, all major banks, and now Citi for a second time. That doesn't count bridge loans early next year, if its not too late, for GM, Ford, and Chrysler. It also doesn't count the Federal Reserve facilities to keep the commerical paper market afloat and another one that's coming to keep the asset backed securites market (credit cards, student loans, auto loans, etc.). The Fed's balance sheet has already doubled to $1.3 trillion, and it looks like its going further.
If another stimulus bill early next year and a new administration can inspire confidence, hopefully we can emerge from a severe recession late next year with enough economic power in tact to begin chipping away at the the $2 trillion of additional debt the federal government will have accumulated by then.