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The Citibank Bailout Paid Off (the Treasury made 8 billions)

13 points by kvs 17y ago

tb 17y ago
Here's a counter: http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.php http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.p...
joe_the_user 17y ago
Ah, It doesn't really matter what the government makes or doesn't make with these transactions. By guaranteeing these companies, saying the companies are too big to fail, they've granted them a junior right to print money. If an investor knows the government is going to buy Citibank bonds in a pinch, the investor can buy without caring at all whether Citibank is making a profit. So the bad effects won't come in terms profit or loss on these transactions but rather through these guarantees' effect on the currency and the economy as a whole.
- Frazzydee 17y ago
  Things looked pretty scary before the bail-out. I don't think it's been long enough for the full economic effects to have been realized, but, if you believe the hype, a major crisis was averted. IMO, the bailout was a necessary band-aid solution, although you can't keep on doing it. I think a better solution is stronger regulation of banks. Banks are a major part of our economy, and shouldn't be allowed to make so many risky investments. They can't "print money" if we carefully regulate the types of investments they can enter into. That strategy seems to have worked out for Canada. I know Americans are generally against regulation, but I think that, absent government regulation, banks would need to maximize short-term gain, even at the risk of a crash in the future. People put their money in whichever bank offers the highest return. If Bank A has a bunch of risky investments, which will crash in 10 years but give a good payout until then, they can offer higher interest rates than their more conservative competitors. Competitor B would be forced to adapt, because its depositors will probably be gone within 10 years. Another idea is progressive taxation for banks: Tax the big banks more than smaller banks. That would create an economic incentive for smaller banks, and banks are less likely to get "too big to fail." Not sure if this would work (for example, if many smaller banks invested in sub-prime mortgages, and defaults started occurring around the same time)
  - anamax 17y ago
    > I think a better solution is stronger regulation of banks. Banks are a major part of our economy, and shouldn't be allowed to make so many risky investments. The risky investments were pretty much mandated by the regulators that you think will protect us. Banks must have reserve capital. The regulators encouraged banks to hold lots of Fannie and Freddie stock by treating it specially for the purposes of reserves. As a result, Fannie and Freddie tanking pushed many banks into technical insolvency. (This isn't the last time Fannie and Freddie will make an appearance.) Regulators also granted a monopoly on bond rating to Moody's and a couple of other companies. Oops - they were wrong. Regulators also pushed securitization of mortgages to help boost the housing market. They wanted banks to hold such securities as reserve and wanted that to be seen as safe. Their solution, insurance, as sold by AIG, which was heavily regulated. And, remember Fannie and Freddie? They lied about the loans in their pools, so no one knew how much of the market was subprime. That screwed up everyone's risk analysis. This crash was pretty much a creation of regulation. > banks are less likely to get "too big to fail." If Citicorp is too big, what does that make the US govt? Regulation is systemic risk.
- AmericanOP 17y ago
  If that's the junior right, then I guess loaning them money at near 0% interest and letting play in the equity market is the major right. So sad that a mere +8 billion makes headlines when we're going hundreds of billions deeper in the red every month. At the current rate we surpass the mandated national debt ceiling by Christmas.
ck2 17y ago
$8 billion pays for about two months of war in Afghanistan.
- amock 17y ago
  How is that relevant?
  - pak 17y ago
    It just gives you a sense of scale.
- anamax 17y ago
  $8B/two months is in the noise. The 2010 US deficit is >$100B/month, or >$8B in 3 days. (The White House estimates $1.56T while CBO estimates $1.35T.) The 2011 deficit estimates are smaller, but still very large. (CBO says just under $1T while WH says around $1.25T.) The lowest WH deficit estimate is over $600B/year.
  - lmkg 17y ago
    This is the recoup on a single $45 billion investment, which is nearly as much noise as $8 is. If your point is just to put the amounts in perspective on the government scale, that's valid. However, the point of the article was not that Citi paid off the national debt, it's that the bailout was not completely flushing money down the toilet. Considering the "omg government waste" hype that was flying around this time last year, the point of the article is the sign of the net ROI, not the magnitude.
    - AmericanOP 17y ago
      I agree with you, especially since I just made a similar comment above. I think that because conversation on this site rarely touches on the macroeconomic situation, an obvious comment rehashing our debt problem can seem like an insightful contribution by the author. I think it's good HN doesn't focus on macro speculation since it can be so polarizing, though I think it's unintentionally caused by a lack of discussion around leading indicators.
onedognight 17y ago
This headline is totally misleading. As the article mentions, when you factor in the money given to AIG (a huge proportion of which went straight to Citibank) the US Government is still down.
nwatson 17y ago
The US government's Citibank investment is paying off because a bit of that huge stream of government cash/debt flowing into the economy has sloshed into Citi's bowl. The total overall net for the US government and us taxpayers will still be hugely negative. The first government divestments will be net gains. The realization of pain comes later. I'm cranky right now. My opinion tomorrow might be different.
hnsummary 17y ago
Article Summary: The government bailed out Citigroup to the tune of $45 billion in 2008. $20 billion of that has been paid back by Citigroup to the Treasury and the remaining $25 billion was converted to common stock. The stock is now worth $33 billion netting the government an expected $8 billion. http://hnsummary.com/2010/03/30/citibank-pays-off-its-bailout-money/ http://hnsummary.com/2010/03/30/citibank-pays-off-its-bailou...

13 points by kvs 17y ago

tb 17y ago

Here's a counter: http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.php http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.p...

joe_the_user 17y ago

Ah, It doesn't really matter what the government makes or doesn't make with these transactions. By guaranteeing these companies, saying the companies are too big to fail, they've granted them a junior right to print money. If an investor knows the government is going to buy Citibank bonds in a pinch, the investor can buy without caring at all whether Citibank is making a profit. So the bad effects won't come in terms profit or loss on these transactions but rather through these guarantees' effect on the currency and the economy as a whole.

Frazzydee 17y ago
Things looked pretty scary before the bail-out. I don't think it's been long enough for the full economic effects to have been realized, but, if you believe the hype, a major crisis was averted. IMO, the bailout was a necessary band-aid solution, although you can't keep on doing it. I think a better solution is stronger regulation of banks. Banks are a major part of our economy, and shouldn't be allowed to make so many risky investments. They can't "print money" if we carefully regulate the types of investments they can enter into. That strategy seems to have worked out for Canada. I know Americans are generally against regulation, but I think that, absent government regulation, banks would need to maximize short-term gain, even at the risk of a crash in the future. People put their money in whichever bank offers the highest return. If Bank A has a bunch of risky investments, which will crash in 10 years but give a good payout until then, they can offer higher interest rates than their more conservative competitors. Competitor B would be forced to adapt, because its depositors will probably be gone within 10 years. Another idea is progressive taxation for banks: Tax the big banks more than smaller banks. That would create an economic incentive for smaller banks, and banks are less likely to get "too big to fail." Not sure if this would work (for example, if many smaller banks invested in sub-prime mortgages, and defaults started occurring around the same time)
- anamax 17y ago
  > I think a better solution is stronger regulation of banks. Banks are a major part of our economy, and shouldn't be allowed to make so many risky investments. The risky investments were pretty much mandated by the regulators that you think will protect us. Banks must have reserve capital. The regulators encouraged banks to hold lots of Fannie and Freddie stock by treating it specially for the purposes of reserves. As a result, Fannie and Freddie tanking pushed many banks into technical insolvency. (This isn't the last time Fannie and Freddie will make an appearance.) Regulators also granted a monopoly on bond rating to Moody's and a couple of other companies. Oops - they were wrong. Regulators also pushed securitization of mortgages to help boost the housing market. They wanted banks to hold such securities as reserve and wanted that to be seen as safe. Their solution, insurance, as sold by AIG, which was heavily regulated. And, remember Fannie and Freddie? They lied about the loans in their pools, so no one knew how much of the market was subprime. That screwed up everyone's risk analysis. This crash was pretty much a creation of regulation. > banks are less likely to get "too big to fail." If Citicorp is too big, what does that make the US govt? Regulation is systemic risk.
AmericanOP 17y ago
If that's the junior right, then I guess loaning them money at near 0% interest and letting play in the equity market is the major right. So sad that a mere +8 billion makes headlines when we're going hundreds of billions deeper in the red every month. At the current rate we surpass the mandated national debt ceiling by Christmas.

ck2 17y ago

$8 billion pays for about two months of war in Afghanistan.

amock 17y ago
How is that relevant?
- pak 17y ago
  It just gives you a sense of scale.
anamax 17y ago
$8B/two months is in the noise. The 2010 US deficit is >$100B/month, or >$8B in 3 days. (The White House estimates $1.56T while CBO estimates $1.35T.) The 2011 deficit estimates are smaller, but still very large. (CBO says just under $1T while WH says around $1.25T.) The lowest WH deficit estimate is over $600B/year.
- lmkg 17y ago
  This is the recoup on a single $45 billion investment, which is nearly as much noise as $8 is. If your point is just to put the amounts in perspective on the government scale, that's valid. However, the point of the article was not that Citi paid off the national debt, it's that the bailout was not completely flushing money down the toilet. Considering the "omg government waste" hype that was flying around this time last year, the point of the article is the sign of the net ROI, not the magnitude.
  - AmericanOP 17y ago
    I agree with you, especially since I just made a similar comment above. I think that because conversation on this site rarely touches on the macroeconomic situation, an obvious comment rehashing our debt problem can seem like an insightful contribution by the author. I think it's good HN doesn't focus on macro speculation since it can be so polarizing, though I think it's unintentionally caused by a lack of discussion around leading indicators.

onedognight 17y ago

This headline is totally misleading. As the article mentions, when you factor in the money given to AIG (a huge proportion of which went straight to Citibank) the US Government is still down.

nwatson 17y ago

The US government's Citibank investment is paying off because a bit of that huge stream of government cash/debt flowing into the economy has sloshed into Citi's bowl. The total overall net for the US government and us taxpayers will still be hugely negative. The first government divestments will be net gains. The realization of pain comes later. I'm cranky right now. My opinion tomorrow might be different.

hnsummary 17y ago

Article Summary: The government bailed out Citigroup to the tune of $45 billion in 2008. $20 billion of that has been paid back by Citigroup to the Treasury and the remaining $25 billion was converted to common stock. The stock is now worth $33 billion netting the government an expected $8 billion. http://hnsummary.com/2010/03/30/citibank-pays-off-its-bailout-money/ http://hnsummary.com/2010/03/30/citibank-pays-off-its-bailou...