So US taxpayers are into Citicorp for around $400 billion. If we look out to June, July, and if we see that the PPIP [Public-Private Investment Program, created by Treasury Secretary Timothy Geithner] is not succeeding, that the bank assets aren't being bought at levels that they should be bought from the books of banks, then there is an alternative.Bradley is not the first person to make the point. Why not just buy the damn things outright? Uncle Sam is acting like someone who spends $50,000 a month to rent a mobile home worth $60,000.
Think back to Citicorp. I looked at the ticker today: the market capitalization of Citicorp is $17 billion. So the government could buy Citicorp for a fraction of what we've already obligated the taxpayer for. And in buying Citicorp, as an example—there could be one or two others—the government would announce in four to six months that it is going to sell the good assets of the bank back to the public. If the government bought Citicorp for, let's say, $20 billion, what would it be worth if the government sold the good assets back to the public? Surely, several times what it paid for it.
Part of the problem, I think, is the "Obama the socialist" meme which the Repblicans keep pushing. (See here and here.) I'm stunned at the number of people who believe that nonsense despite the utter lack of evidence (and the copious amount of counter-evidence). The purpose of the propaganda campaign is, I believe, to make the purchase of the banks politically impossible.
5 comments:
Obama is oh so sensitive to the concerns of his sworn enemies, he'd better dance with the one's that brung him. Eventually, people who voted for him are going to start wondering who's interests he's representing. Recall the mantra of the past several years: more and better Democrats, that can apply to the guy on the top rung just as easily as anyone else.
The value of the equity may be $17 bn, but then there's all that debt they have outstanding. The enterprise value of Citigroup is significantly greater than $17 bn. At the end of 2008 they had $475 bn of debt and $70 bn of preferred stock outstanding. Offsetting this they had $200 bn of cash and $230 bn of short-term (i.e., trading) investments.
We're on the hook for the debt anyways.
I agree entirely. Did anyone realise before recent events how powerful the banking lobby was in the US? If this is what they can do when they are flat on their bank, would are they capable of when they are financially sound?!
Harry
Yes, the U.S. insures the debt, but that's not quite the same as owning it. My homeowner's insurance costs about 0.25% of the insured value a year. Technically the insurer is "on the hook" for my mortgage, but that doesn't give them the right to tell me whether to paint my walls white or off-white (or to tell me how much I can pay my kids in allowance).
All the TARP recipients received Preferred Stock at a 5% interest rate that's convertible into common and treasury is getting its 5% plus stock options on the transferred funds. Preferred Stock is significantly different than Common in the capital structure - the most important difference is there are no shareholder voting rights associated with Preferred (the nomenclature means that in a liquidation, Preferred holders get paid before Common).
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