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February 27, 2009
Stuff I Agree With

Barry Ritholtz says:

If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finish marginally ahead of George W. Bush on the list of worst presidents.

Yep – here is but one reason – NYT:

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

…
Citgroup shares were down 26 percent, to $1.80, at midmorning on Friday.

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 bank has offered to exchange up to $27.5 billion of preferred stock into common shares at a price of $3.25 a share, a 32 percent premium over Thursday’s close.

So the Obama administration just exchanged $25 billion worth of dividend paying preferred stock for not dividend paying common stock paying $3.25 a share while the market price for Citi common stock is $1.80.

Somehow that deal does not make sense to me …

Posted by b on February 27, 2009 at 16:02 UTC | Permalink
Comments

Amen.

Posted by: Darkcloud | Feb 27 2009 16:13 utc | 1

No, no, b – it’s all something to do with his BRILLIANCE. You haven’t been paying attention.

Posted by: Tantalus | Feb 27 2009 16:46 utc | 2

You see, the problem is that if the market price for shares were used, the government would be the majority owner of Citi, effectively nationalizing it.
Obama said that wouldn’t happen, so the taxpayer gets swindled instead.

Posted by: Obelix | Feb 27 2009 16:55 utc | 3

Exactly, it makes no sense.
Either the US Treasury is in denial and isn’t listening to Paul Krugman; or, the Stockholders; rich oil sheiks and the multinationals have stopped the nationalization of Citigroup.
The basic problem is that all the leverage debt secured by Credit Default Swaps is worthless. The 40 to 60 trillion dollars in value is so great that it cannot be deflated by a new bubble.
In the grand tradition of the George W Bush, the Obama Administration is kicking the can down the line. The whole point is that it is a wasted exercise. The great debate should be how to peacefully deflate American until it lives within its means. But, more likely, there will be blood.

Posted by: VietnamVet | Feb 27 2009 17:10 utc | 4

rich oil sheiks and the multinationals have stopped the nationalization of Citigroup.
I’ve been trying to research this, just for kicks.
The total SWF investment is around 455 billion.
That doesn’t seem like much.

Posted by: slothrop | Feb 27 2009 17:39 utc | 5

45 billion, I mean.

Posted by: slothrop | Feb 27 2009 17:40 utc | 6

I’m trying to figure out where a future profit would come from. Even if you started with a clean slate and $100 billion, to whom are you going to lend? Given the near-term trajectory of the world’s economy, even lending to only currently highly-rated entities you would expect at least 10% of these loans to go bad.

Posted by: biklett | Feb 27 2009 18:44 utc | 7

All roads lead to Rubin…
Also, Bloomberg was reporting last night that AIG’s CDS losses will be ‘backstopped’ by the Fed…

Posted by: Jeremiah | Feb 27 2009 18:50 utc | 8

Obama is subservient, inexperienced, and out of his depth. All he can do is hand out all over the place. He believes the bankers when they tell him the US (and he himself) will ‘die’ if the banks are not propped up…endlessly until they eventually expire in a black hole. Putting it off and praying or posturing until better times – and seeming to have made the effort – is a good strategy. Or the only one!
That is the simple explanation.
What if the banks, the Gvmt. and the Fed have been indulging in massive fraud, so extravagant one can’t imagine it. Manipulating everything, from sub primes (multiple mortgages on the same house perhaps, sold on to China, Germany, etc.) to the ratings, to the shuffling to and fro from the Fed to the Gvmt, to borrowing, etc. All backed up with the legendary currency the US dollar and US military as a potential threat.
What if?

Posted by: Tangerine | Feb 27 2009 19:06 utc | 9

don’t you understan’ b – he is really really really intelligent & he is a professor of law & thus all is under control – we can be calm throught the carnage of this catostrophe – but don’t call it that – itsa teensy weensy bitsa internal conflict

Posted by: remembereringgiap | Feb 27 2009 20:49 utc | 10

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