Alright, let’s see if I got this straight:
- Less than 4 weeks ago Citi was purchasing Wachovia in a deal brokered by the FDIC.
- Less than 3 weeks ago the Fed injected $25 billion into Citi
- Less than 1 week ago Citi’s shares tumbled
- Yesterday the Fed injected ANOTHER $20 billion into Citi
Am I forgetting anything? Oh yeah:
- Based on share price, Citi is now worth $20 billion… which means we (the taxpayers) have bought her twice!
When Citi was buying Wachovia waaaaaaay back in October, it was apparently strong enough to handle the $42 billion in losses it agreed to take on in exchange for the Fed covering the other $270 billion that Wachovia was going to generate in bad loans. But now we discover that they actually needed us to purchase them… TWICE, and we’re still unsure if they’ll survive.
(For a clearer picture of which lenders had these bad loans and would fail, read The Mortgage Dance from July of 2008 and click on the “accounting debacle” link which was originally delivered in a speech in August of 2007! Or you can read about Countrywide beginning its fall back in May of 2007. My point is that much of this seems obvious now and was actually visible on the horizon quite a while ago. But the Fed keeps up its Animal House impression, telling us to “remain calm… all is well.” The possibility of a conspiracy grows so large that now i don’t even leave the house without my Tin Foil Hat.)
I have to wonder if there was more going on in that initial Wachovia deal. Was Citi getting a cash infusion of some type? One of the influential directors at Citi is Robert Rubin – the former secretary of the Treasury. I’m not sure I understand how he didn’t see that Citi was only three weeks away from failing. Although I can certainly understand how he might have an inside ear at the Treasury. Was the Wachovia deal a way to support Citi without making a public scene? That would explain the ensuing public scene (the technical term in economics is hissy-fit) that Citi AND the Fed threw when Wells Fargo came along and said they would buy Wachovia without any help from the government. The Chairman of the FDIC would have none of it. She said they still backed the Citi plan!! Citi itself stomped its feet to the tune of a $60 billion lawsuit. Sixty billion dollars? Is that what they were looking for all along? How in the world did the FDIC stand there with a straight face and say they still backed Citi when Wells was offering 7 times as much with no taxpayer risk? How in the world did Citi plan to show that losing Wachovia to Wells Fargo cost them $60 billion? Maybe they all believed what they were saying… Maybe they all forgot their Wheaties that week… Or maybe there was more going on than we were lead to believe.
I’m not sayin’… I’m just sayin’…12 comments