Constant Conservative

Big news here today (since Citi is, I believe, the largest employer in Sioux Falls, outside of the public school system):

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.

Malkin notes that:

Here we go, folks. The Treasury Dept/FDIC/Federal Reserve have issued their late-night joint statement announcing $306 billion in federal backing for Citicorp plus $20 billion of the Crap Sandwich (that’s on top of the $25 billion bite they’ve already taken).

I do not wish Citi or any of its employees ill, but where is the end of this mess? I’m sure there are not a few people working for Citi in South Dakota who are thinking that they are glad we dodged the bullet on that one. Perhaps. But are those same people aware of what just happened? The US government (not you and me, unfortunately) will shortly own 8% of a private company. Those are voting shares, my friend, not the ones which you and I generally purchase. Sigh.

Tastes like a socialism appetizer–another one. One can only wonder how long we’ll need to wait before the main course.