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More Welfare For Bankers

Posted By on February 27, 2009

“In its most daring bid yet,” says the NYT, the government will “vastly increase” its ownership stake in Citigroup.

“After two multibillion-dollar lifelines failed to shore up Citigroup, the government will increase its stake to 36 percent from 8 percent.”

“Under the deal, the Treasury Department agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock, giving taxpayers more risk, but more potential for profit if the company recovers.”

The NYT article almost makes it sound like some sort of reasonable business deal.

It’s not.

First of all, the $45 billion we’ve already “invested” in Citi represents 321% of its current market cap, which is about $14 billion.  The new $25 billion alone is worth almost twice as much as the entire company. How taxpayers have been led to invest so much for so little is a compelling question, but it’s not one the NYT, or (to my knowledge) any major paper’s seen fit to ask.

Second, it’s about the least daring thing the goverment could have done.  “Daring” might have included nationalizing Citi, firing the executives who bankrupted the place, and reorganizing it so it wasn’t “too big to fail.”

That would be daring.  This is the opposite of that.


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