Paulson and Bair: "Wait, no that buying toxic asset thing, let's try that again..."
Wasn't it just a week ago that Paulson said we didn't need to buy up or guarantee toxic assets, that simply handing out money to shore up capital was good enough? Citi has gotten GOBS of extra capital, both from government and private overseas bagholders, and it now needs another $20-$250 billion worth of taxpayer largesse?
Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies -- the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. -- will take on any additional losses, though Citigroup could have to share a small portion of additional losses.
The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet. That means taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
In exchange for that protection, Citigroup will give the government warrants to buy shares in the company.
In addition, the Treasury Department also will inject $20 billion of fresh capital into Citigroup. That comes on top of the $25 billion infusion that Citigroup recently received as part of the the broader U.S. banking-industry bailout.
Another $20, $50, $200 billion here... Someday we'll be talking about real money, I suppose. And I'm sure that this is:
1) For our own good
2) A great deal for taxpayers, who will make loads of money on these toxic assets.
What this really looks like is a deal with 3 devils. Citigroup gets to survive another month or so. Paulson gets his butt out of the wringer for a month or so. Bair gets her stuff out of the wringer too, and gets to force Citi to cleave to her socialist manifesto of free mortgages for all...