Tweet
Ha ha, funny thing about that: turns out we didn’t really give it to banks. It seems like we actually turned over $25bn to Citigroup, Inc., not to Citibank. Citigroup is a bank holding company. It owns all of the outstanding stock of Citibank. But that is not its only holding. It owns Smith Barney, a giant investment banking firm. And it operates an institutional clients group (ICG), which is involved in debt and equity markets, private equity, hedge funds, real estate, and more. This part of the business is suffering, with $6.129bn in write-downs in the third quarter alone (p.6):
ICG S&B revenues were ($81) million, due to write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion (net of hedges) on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. S&B revenues also included a $306 million write-down related to the ARS [auction rate securities] settlement.
This is not just a detail. The $25bn never got to Citibank. When Blue America candidate Alan Grayson (donate here) asked the head bankers what they did with the money, he got no answer.
That money isn’t going to increase lending by Citibank. Maybe it became collateral for credit default swaps. Maybe it shored up Variable Interest Entities (p. 116), which are separate legal entities, trusts or LLCs, for example, where Citigroup (or Citibank, the financials don’t separate them in this area) has a significant risk of loss or gain, even if it doesn’t own a controlling equity interest. These are included in the activities of the ICG, that group of losers. If that’s where the money is, it sure isn’t going to increase lending. All it could do is prevent horrendous losses to outside investors.
Another example: the Treasury gave $10bn to Morgan Stanley, which describes itself in it’s recent 2008 10-K:
Morgan Stanley is a global financial services firm that, through its subsidiaries and affiliates, provides its products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals.
One of those subsidiaries is Morgan Stanley Bank, a small bank in Utah, total capital of $7.6bn, which makes it a good-sized community bank. That’s the bank that makes Morgan Stanley a bank holding company. Obviously that $10bn we gave Morgan Stanley didn’t go to a bank. It’s just sitting in the “global financial services firm”, where it is being used as the subsidiaries and affiliates want it. It isn’t going to increase lending in the normal banking channels. I bet it makes Morgan Stanley counterparties and investors feel just a bit more safe, though.
We all thought that the TARP money went to banks. We were told, and we expected, that it would improve the credit markets, and make it easier for companies and consumers to borrow. Nobody checked closely enough to spot this bait and switch from Paulson and Bernanke.
Their plan, and by default, the current plan, is to throw money at Citigroup, and hope that management will figure out something to save Citibank. But there is no reason to think they will do that. If saving Citibank is important, why doesn’t Treasury get on the task of saving it instead of hoping for salvation by the people who put it in the ditch? It’s one thing to save the bank, for which the FDIC is on the hook. It’s another to try to save the shadow banking system.
If we are going to throw money at Citigroup, we are entitled to a clear and very public explanation for why taxpayers should pay off the bad investments of those losers.
60 Comments
And we have NO idea to whom or for what regarding the billions the FED dispensed.
I truly wonder when the ‘liberal bloggers’ are going to admit they are fighting an oligarchy whose main focus is controlling the population and continuing their entrenched power.
Because they own the politicians. The idea that Goldman Sachs or Morgan Stanley good throw some pixie dust on themselves and become bank holding companies overnight was always a fiction. I agree about the bait and switch. Paulson and Bernanke shoveled huge amounts of money into the baking system but most of that system has little or nothing to do with your everyday commercial banking. It does explain in part why the liquidity trap was a trap.
Heavens.
..you typed baking instead of banking..seems appropriate somehow..’g’..
THIS has got to make you feel better; yeah,right.
“Kaiser explains that as long as Washington is a center of money and power, it will tempt some people. He illustrates his point with the story that titled his book:
I went to [lobbyist Bob] Strauss, and I said, “Explain to me why the lobbying business has boomed so, in the years that you’ve been in it, 35 years.” And he thought about it for a minute, and he said, “You know, there’s just so damn much money in this.”
If you didn’t catch this, then you don’t really understand what goes on.
That’s where some of the problem seems to lie — the press reports on the ’supposed banking system’, the sort with the drive up windows and the Merchant Counter that is familiar to so many of us.
But the problem lies in the shadow system, in which I include CDOs and CDSs.
Assuming that reports are accurate that firms — including CitiGROUP and Goldman Sachs and other bankReplicants** — were actually ‘leveraging’ by buying derivatives at 1:30 odds, then it would seem a basic worst-case scenario to suppose that they’re not simply insolvent — IF they wrote ‘credit derivatives’, then isn’t it likely that the ‘toxic waste’ has them -30x what most of the reporting suggests?
In other words, we think that they failed on a 1:1 ration.
But if they are failing on a 1:30 ratio, that has a whole other host of implications with respect to just how over-extended they are…. am I correct?
———————
** in the movie “Blade Runnerthe ‘replicants’ appear human, but they are robots with biological parts and in many cases superhuman strength; in the same sense, these ‘bankReplicants’ appear to be banks, but are not. They’re hybrids — commercial+investment behemoths, but despite their origins the name ‘bank’ does more to disguise their nature than to reveal their true nature and functions in 2009.
IANAE but failing at a 1:30 ratio seems an oxymoron since an insolvent bank is still just an insolvent bank no matter how underwater it is. Unless there’s something magical about the combo of a CDS that’s become due and payable, and a bank stock share, that together bestows the power to actually suck money out of the shareholder once the share value goes negative…?
I guess another related question is whether a payment obligation on a CDS that’s become due and payable survives bankruptcy (or temporary receivership), vs. is discharged (or sent to the back of the line and heavily discounted). That would affect the attractiveness of the bank when the USG is ready to sell it back out into private hands again.
Great article. On the one hand, I’m not in the least surprised, since there’s clearly been no sudden outburst of lending. OTOH, I’m disappointed that the new regime doesn’t seem to be putting a stop to this or even mentioning it very much. They’ve been busy, but I think it’s time for them to ask whether throwing more money in this same hole is going to make any difference.
Thanks masaccio.
Digg is open.
None of what they are doing with our money is intended to benefit us (as you have identified). It is all part of a vast global conspiracy. Anyone who still rolls their eyes at such accusations is simply in deep denial. The entire crime is revealed here:
http://oxdown.firedoglake.com/diary/3820
The there exists a shadow banking system AND a shadow government is beyond dispute. Funny how you never hear the shadow-owned mainstream media talking about who controls both (by name), eh?
The Globalist Banksters figured out how to take Congress completely out of the oversight function of the US Government.
Congress was said to have “The Power Of The Purse.”
Rumsfeld and Zakheim depleted the Pentagon’s budget of $2.3 TRILLION – with Rummy announcing it less than 24 hours before the 9/11 attacks.
This meant that Congress would have no choice but to dump in a massive amount of money to fight the BOGUS WAR ON TERROR, which Rumsfeld himself created along with his Zionist Co-Conspirators.
Well prior to that time – prior to the Iran Contra Scandal, The INTELLIGENCE Complex figured out that that could completely circumvent Congress and accomplish any goal they chose by trafficking in cocaine and heroine – and using the profits to fund their operations.
A Shadow Government was created with these funds – with its own objectives – in concert with Israel and the Crown.
Congress is essentially powerless as long as the funding for the Shadow Government’s Operations comes from drug sale headed by one GHW Bush.
CNN — SPECIAL ASSIGNMENT
November 17, 1991
In the United States of America there is a hidden government about which YOU KNOW NOTHING.
Tom Golden, Chief of Counter Intelligence Strategic Defense Command: “It is highly classified and the largest program of it’s kind that I had ever become involved in”
In the United States Federal Government there is a super-secret agency which controls this Shadow Government.
http://www.sweetliberty.org/is…..omsday.htm
“There exists a shadowy government with its own Air Force, its own Navy,its own fundraising mechanism, and the ability to pursue its own ideas of national interest, free from all checks and balances, and free from the law itself.”
— Senator Daniel K. Inouye at the Iran Contra Hearings
http://www.sweetliberty.org/shadow.htm
http://www.abovetopsecret.com/pages/secgov.html
http://villagevoice.com/news/0…..tml#cheney
This is being implemented by executive decisions; intrusive, unconstitutional laws being passed at the state and local levels of government; and a shadow government (the Doomsday Plan – Continuity of Government) of non-elected people that we’re told was implemented by the president on the day of infamy. . . 9-11-01.
In fact, it is NOT a plan for the Continuity of Government. It is a plan for the Continuity of the Executive Office — one branch of government.
http://www.sweetliberty.org/is…..aseiii.htm
Let’s not get too caught up in tinfoil hat conspiracy here. It’s not that conspiracies don’t exist–they do. But they just don’t work–certainly not well enough to achieve any sort of global purpose. Basically, the conspirators are never as smart as they think they are. If the Wall Street clowns really were enough on the ball to run a shadow government, they wouldn’t be in the mess they are in.
Real freemarket capitalism fights monopolies generally and the merger of state and commercial power in particular because man’s capacity for gross stupidity increases in proportion to [a] his own sense of his own smarts and [b] his power to act on [a].
We are now being run by a gang of con men who conned themselves far more effectively than they conned the rest of us. Nobody but a sucker bets the farm on winning a 30:1 longshot. Just ask a bookie if you know one–he makes his living taking such people to the cleaners. The odds are what they are for a reason. But our economic geniuses, from Greenspan to Summers and the rest, knew that they were smarter than the rest of us and much smarter than the odds. They believed their own material. They bought their own con. And here we are. Remember that Ponzi himself died in poverty but remained convinced to the end that his scheme really worked.
Somehow, we have to shake this administration’s faith in the experts before complete economic collapse does it for us. Obama’s basic intelligence and evident lack of real understanding of financial/economic matters is, I think, now our last best hope. He may still be able to see that the emperors of high finance are not wearing pants.
Knowing very little about the banking industry yet watching the Wall Street “Bail out, recovery, investment, rescue” hearings on C-Span it sure seemed “shadowy”. When I would hear Senator Harkin and others explain that they knew very little about Credit Default Swaps etc…I did not feel so naive. But thought hell our Reps do not understand this then we are in deep doo doo. Lack of oversight sure seems to be one of the reasons our nation/world got into this mess. Yet the lack of oversight seems to be continuing
Did you watch the Frontline Special on the bailout? “Banking on the Brink”
http://www.pbs.org/wgbh/pages/…..brink.html
“He may still be able to see that the emperors of high finance are not wearing pants.”; Obama is too aware and inteligent NOT to see that the emproer hasn’t any clothes; the issue is does he have the courage to speak to that fact.
If he does not it will be a short four years. And the times that Obama and Holder have repeated “no one is above the law” will continue to ring hollow
Selise spreading this one around. Damn good. Thanks for helping us understand
I tend to share your view. Things are definitely connected, and I think that ‘Sir’ Stanford news topic is going to start unearthing some very ugly things: it appears the SEC was called off clear signs that he was laundering money for (violent) drug cartels. But I tend to share your view that people aren’t as smart as they think they are, and that sooner or later they overreach.
I also think we’re in an age when there’s so much information, the quality of most of it is degraded and we also tend to miss the ‘dark holes’ of missing data. So we’re operating with lots of data points, but many of them are incorrectly mapped and we tend to miss the fact that our information is spotty. Nevertheless, I think that’s the primary value of a good blog — shared expertise can fill in plenty of gaps fairly quickly.
Leen’s recommendation about Frontline is excellent, IMHO.
And I realize that no one can afford to repay the 1:30 odds, but I fear that happened last fall and that groups like Cerberus still expect to be able to cover these reckless gambles via the TARP money.
One big, ever-changing kaleidoscope, that’s for sure.
But masaccio’s raised such a good point here that I had to return for a re-read the following day.
leen – this most excellent diary is masaccio’s, not mine.
And now this announcement
oddly on topic – the ponzi Anglo-Irish bank and Harry Browne disses Tom Friedman http://www.counterpunch.org/browne02192009.html
Sounds like Fraud who is going to jail? EX Sec of Treasury Paulson or Helicopter Ben?
from your link:
So…we didn’t loan the money, it was given. And, it didn’t go to banks like we were led to believe.
Somebody is lying and a whole lotta money went to their friends!!
Heads should roll here, people!
i’m a liberal, so i say fair trials first.
Indictments, then trials, [edited by Mod]…
guess that makes me a moderate!
Sorry meant to post this statement at your Glass Steagal. post. Both post help us understand
nah… I’d be satisfied with modestly long prison sentences confined with the confiscation of all personal property (the fruits of fraudulent action)
no problem. thanks for the encouragement and links.
Save a penny eat a penny. Some checking accounts at .0005, some savings at .001, some IRA’s at 5% and they reduce taxes. Banks suck…go Credit Unions.
Sure Trials but no bail I don’t want them to disappear or try and fake their own deaths.
I was half way thinking of writing an oxdown diary on this in the Citigroup case. What is the point of having a stress test to see if banks get the money anyway? In Citi’s case, it is even more gratuitous they wanted money in advance of the stress test to make their financial position look better so that they would do better on the stress test so that they could receive more money, which now it looks like they would receive even if it failed the test.
This reminds me of what happened during CA’s electrical energy debacle. Pacific Gas & Electric Co. EAGERLY sold off its generating capacity (in order to take advantage of the newly created open energy market). It was supposed to benefit from buying low cost electricity. However, it was also supposed to eat the loss if the cost of buying – and guaranteeing supply to consumers. Funny thing is, PG&E created PG&E Co. – an entitly separate and apart from PG&E, the Utility – that transmitted and distributed the purchased energy. So when the Utility was now demanding to pass along the costs to the ratepayers and the PUC (along with the great consumer groups like TURN) demanded that the Parent Corp. pick up the costs, they had “ring fenced” the profits – which belonged to the shareholders they successfully argued.
Twas ever thus – privatize profits and socialize costs.
OK: indictments; trials; then, if guilty, a stern rebuke and $20 fine.
no bail, and revoke their passports!
sorta on topic…
FINALLY, someone (the VP’s chief economist) tells us that we can judge success and health of the economy by PAYCHECKS not PORTFOLIOS. not that portfolios aren’t important, but the portfolios will look better when people are employed.
how about that?
Haven’t you heard? California is now “like eBay” acc. to Meg Whitman. We’re going to auction ourselves to properity.
When will these idiots realize that government doesn’t run like a business? It is not for profit, it is for public service. I’m such a dinosaur.
Extraordinary rendition is too good for these people. How in the hell could anyone with half a brain give citi more money? I don’t see how BO could conceive of throwing enough money at citi to dig them out. Let them fail. Conduct investigations, prosecute and incarcerate the guilty. If no one goes to jail over this, we are completely fucked for good with corporate america being our overlords.
it’s to give us confidence. don’t you know? all our problems are psychological — not economic?
(that’s a riff on a joke stiglitz tells about globalization/trade protests).
more from naked capitalism: Now It’s Official: Stress Test Results Pre-Determined
Hugh, this will probably inspire you.
“Companies that convert the government’s investment to common shares can reduce required dividend payments and ease repayment pressure for the banks. The change could encourage more people to invest alongside the government. And there is a significant but technical accounting benefit. The swap would significantly improve banks’ performance on a measure of health used by financial analysts called tangible common equity, which basically judges a bank’s reserves against future losses.”
There is an overly simple solution. If it is required, nationalize it. Put whistleblowers in charge of it, as they show willingness to take risks to bring a ray of sunshine. Make the penalty for abusing the situation mandatory and severe. It would also serve to remove politicians from the ranks of people serving in congress and elsewhere in elected office. Very few of our elected officials deserve respect for their overall achievements. They do not deserve a pension, because their job requirements demand bribery and payment for the rest of their lives by their patrons. Make them live on the same pension as we do.
Take away their exclusives and we will have more of an equitable solution. It is time to end profit on the things that are required for existence. And it’s about time.
The long-odds bet is the proximate root of the problem, and is insoluble. There’s no amount of money the government can put up to cover that bet. It didn’t look quite that bad last fall, because even the insiders thought it could be contained. This doesn’t let Paulson off the hook, but it explains why the destruction has taken so long to develop. I am reminded of the Titanc.. Apparently when it hit the iceberg, the shock could hardly be felt. What happened was that the ship hit it obliquely, and the ice tore a long gash along the side of the boat, rendering useless the divided compartments that would have otherwise maintained bouyancy. It took hours for the sense of disaster to sink it, though they apparently knew it on the bridge.
We are seeing the same thing happening to the shadow banking system. One reason why this is global is that system was used to make speculative plays all over the world. It was what they taught in the MBA programmes. Make money by buying promising assets. Let the ants do the real work of generating the money behind those assets.
Too many chiefs, not an enough Indians. Ticket for disaster.
Bernanke Offers Jobless Recovery as Humphrey-Hawkins Hopes Fade
And someone tell me why the news that Los Angeles County now has 20 per cent of the population on public aid of one sort or another isn’t headlines?
Well doggone it – that’s exactly my fear. I work for a Union (IUOE!) and watch my public sector employees voice support for the “cutting of programs” and not understand that the goal of cutting programs is cutting the programs that provide the opportunity for the work that they perform ie., cutting their own jobs in favor of a profit driven private sector. I fear that many public entities will now start down the path of selling off their infrastructure such as water treatment facilities, co-generation facitlities and the like. I do my darndest to put this message in a context that brings clarity and understanding. It’s an uphill battle. The bottom line is that workers need to understand that the old saw United We Stand, Divided We Fall is enduring.
I don’t think there was anything in TARP that required it to go to banks chartered under FDIC. It went to large investment banks too before they changed their charter. So I guess I don’t understand the point of this post.
h/t prostratedragon, from galbraith:
“And in that case, the government will not be engaging in price discovery but in price-fixing”; and where is the conservative outcry about that?
And people ask why re-enacting Glass-Steagall is a good idea…
http://www.nytimes.com/2009/01…../17tax.htm
So should the stress test include the health of their off-shore tax-havens?
Yep.
Why Is Geithner Continuing Paulson’s Policy of Violating the Law?
“the owners..they don’t give a fuck about you”
George Carlin says it all
http://www.alternet.org/blogs/video/61955/
I agree. I think the problem is to figure out whether the core bank is solvent, and not to worry too much about the rest of Citigroup.
We were told that the TARP money was being used to support lending, and that is patently untrue. In fact, we aren’t able to see whether the core bank, for which the FDIC is on the hook, is solvent, and could survive outside Citigroup. I note that the core banking parts seem to be paying dividends to the parent.
The sector analysis in the Citigroup financials doesn’t say which parts are where in the corporate structure, as far as I could see. It looks like the treasury is trying to save the shadow banking structures, which are apparently outside Citibank, somewhere in Citigroup. I question whether taxpayers should salvage the investment banking aspects of this company, or any of the others in the same situation. In any case, we need a public explanation as to why this is the best thing to do, if we are going to do it.
That is a great link and a point for the netroots to mobilize around.
.
Sorry for the driveby, but I’m at work and don’t have time yet to digest the comments. I’m writing to suggest this:
Right now there’s a war going on between Wall Street and Main Street. The public is mad as heck at the Wall Street Bankers, who are threatening to take their money and go home.
That is, public anger at the banks is creating an environment where nationalization has become acceptable to everyone but the bankers, who control Wall Street sentiments. The bankers react by selling off stocks, i.e. a vote of no confidence?
In a way, I suspect that the average bloke on Wall Street realizes that the managing class of the big banks has become corrupt, and that *only* nationalization will clean things up enough to restore confidence. But that contradicts what I just wrote, doesn’t it?
Bob in HI
http://rawstory.com/news/2008/….._0223.html
Markets fall after Gibbs won’t rule out bank nationalization
David Edwards and Rachel Oswald
Published: Monday February 23, 2009
Despite all the careful attempts of White House press secretary Robert Gibbs to parse his words regarding questions on any future bank nationalizations, markets sank to their lowest levels in 10 years Monday afternoon when he would not answer a direct question on the matter.
He did not answer a direct question from NBC White House correspondent Chuck Todd at a press conference on why he didn’t just come out and say firmly that there would be no future bank nationalizations. Instead he referred the White House press corp to his Friday statement on the matter
Paulson Wall Streets inside heist man. Geitner/Summers..these guys were part of the problem
Once again, thank you masaccio.
If the market falls and falls and falls and then the Obama recovery plan works, then there should be some good houses and stocks to buy at good prices. Just when that might begin to be a good idea is hard to say. Certainly a lot of people can refinance their homes and essentially make/save a bunch of money.
Write it, Hugh, write it! (while laughing and crying)
yes, please do Hugh