

The Citibank Bailout Paid Off (the Treasury made 8 billions) - kvs
http://www.good.is/post/oh-nice-the-citibank-bailout-paid-off

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onedognight
This headline is totally misleading. As the article mentions, when you factor
in the money given to AIG (a huge proportion of which went straight to
Citibank) the US Government is still down.

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tb
Here's a counter:
[http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.p...](http://www.cjr.org/the_audit/was_the_citi_bailout_really_a.php)

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hnsummary
Article Summary:

The government bailed out Citigroup to the tune of $45 billion in 2008. $20
billion of that has been paid back by Citigroup to the Treasury and the
remaining $25 billion was converted to common stock. The stock is now worth
$33 billion netting the government an expected $8 billion.

[http://hnsummary.com/2010/03/30/citibank-pays-off-its-
bailou...](http://hnsummary.com/2010/03/30/citibank-pays-off-its-bailout-
money/)

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nwatson
The US government's Citibank investment is paying off because a bit of that
huge stream of government cash/debt flowing into the economy has sloshed into
Citi's bowl. The total overall net for the US government and us taxpayers will
still be hugely negative. The first government divestments will be net gains.
The realization of pain comes later.

I'm cranky right now. My opinion tomorrow might be different.

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joe_the_user
Ah,

It doesn't really matter what the government makes or doesn't make with these
transactions.

By guaranteeing these companies, saying the companies are too big to fail,
they've granted them a junior right to print money. If an investor knows the
government is going to buy Citibank bonds in a pinch, the investor can buy
without caring at all whether Citibank is making a profit.

So the bad effects won't come in terms profit or loss on these transactions
but rather through these guarantees' effect on the currency and the economy as
a whole.

~~~
Frazzydee
Things looked pretty scary before the bail-out. I don't think it's been long
enough for the full economic effects to have been realized, but, if you
believe the hype, a major crisis was averted. IMO, the bailout was a necessary
band-aid solution, although you can't keep on doing it.

I think a better solution is stronger regulation of banks. Banks are a major
part of our economy, and shouldn't be allowed to make so many risky
investments. They can't "print money" if we carefully regulate the types of
investments they can enter into. That strategy seems to have worked out for
Canada.

I know Americans are generally against regulation, but I think that, absent
government regulation, banks would need to maximize short-term gain, even at
the risk of a crash in the future. People put their money in whichever bank
offers the highest return. If Bank A has a bunch of risky investments, which
will crash in 10 years but give a good payout until then, they can offer
higher interest rates than their more conservative competitors. Competitor B
would be forced to adapt, because its depositors will probably be gone within
10 years.

Another idea is progressive taxation for banks: Tax the big banks more than
smaller banks. That would create an economic incentive for smaller banks, and
banks are less likely to get "too big to fail." Not sure if this would work
(for example, if many smaller banks invested in sub-prime mortgages, and
defaults started occurring around the same time)

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anamax
> I think a better solution is stronger regulation of banks. Banks are a major
> part of our economy, and shouldn't be allowed to make so many risky
> investments.

The risky investments were pretty much mandated by the regulators that you
think will protect us.

Banks must have reserve capital. The regulators encouraged banks to hold lots
of Fannie and Freddie stock by treating it specially for the purposes of
reserves. As a result, Fannie and Freddie tanking pushed many banks into
technical insolvency. (This isn't the last time Fannie and Freddie will make
an appearance.)

Regulators also granted a monopoly on bond rating to Moody's and a couple of
other companies. Oops - they were wrong.

Regulators also pushed securitization of mortgages to help boost the housing
market. They wanted banks to hold such securities as reserve and wanted that
to be seen as safe. Their solution, insurance, as sold by AIG, which was
heavily regulated.

And, remember Fannie and Freddie? They lied about the loans in their pools, so
no one knew how much of the market was subprime. That screwed up everyone's
risk analysis.

This crash was pretty much a creation of regulation.

> banks are less likely to get "too big to fail."

If Citicorp is too big, what does that make the US govt?

Regulation is systemic risk.

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ck2
$8 billion pays for about two months of war in Afghanistan.

~~~
anamax
$8B/two months is in the noise.

The 2010 US deficit is >$100B/month, or >$8B in 3 days. (The White House
estimates $1.56T while CBO estimates $1.35T.) The 2011 deficit estimates are
smaller, but still very large. (CBO says just under $1T while WH says around
$1.25T.)

The lowest WH deficit estimate is over $600B/year.

~~~
lmkg
This is the recoup on a single $45 billion investment, which is nearly as much
noise as $8 is. If your point is just to put the amounts in perspective on the
government scale, that's valid. However, the point of the article was not that
Citi paid off the national debt, it's that the bailout was not completely
flushing money down the toilet. Considering the "omg government waste" hype
that was flying around this time last year, the point of the article is the
sign of the net ROI, not the magnitude.

~~~
AmericanOP
I agree with you, especially since I just made a similar comment above. I
think that because conversation on this site rarely touches on the
macroeconomic situation, an obvious comment rehashing our debt problem can
seem like an insightful contribution by the author. I think it's good HN
doesn't focus on macro speculation since it can be so polarizing, though I
think it's unintentionally caused by a lack of discussion around leading
indicators.

