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It is ironic that Citibank now ultimately will be calling the shots at Kodak because of the $950M "Debtor in Possession" line of credit: http://en.wikipedia.org/wiki/Debtor-in-possession_financing

When Citibank was bankrupt the Secretary of the US Treasury gave Citibank $45B for preferred stock - basically no strings attached. Shareholders of Citibank kept their equity. The Citibank management that had run it into the ground and stayed in place will now be the ultimate decision makers at Kodak.

Why isn't anyone talking about breaking up these "too big to fail" banks? When they get in trouble again now they will be able to point to saving Kodak as another reason they should be bailed out. If you saw this situation in a third world country: National government loans to bank, bank loans to industry; you would see this a croneyism and not be likely to invest or build a business in that country.




You should also note that the US Treasury ended up making $12B on that deal after repayments.

http://finance.fortune.cnn.com/2010/12/07/treasury-near-10-b...


So you have no problem with the Secretary of the Treasury being the VC in chief for the US, deciding what companies are worthy of investment?


I think in hindsight it was a good move. Probably not the best move possible, but certainly better than letting a total collapse happen.

Regardless of what I think, my point was that your phrasing made it sound like it was a gift when in reality it was a very profitable transaction for the treasury.


I agree it was best not to let Citibank collapse because of the ramifications that would have on other businesses that rely on them for working credit.

But now that the crises is over break them apart into smaller banks that are small enough to fail. Otherwise US taxpayers are liable to cover bad bets that Citibank makes yet any profitable bets stay with the company.

I would argue breaking up AT&T to allow competitors worked out to the advantage of the public AND the shareholders. The smaller baby bells now had to compete and returned more to shareholders than the monolithic AT&T would have.


Sure, but nowhere near as profitable as for the bank, which was saved from near-certain collapse. If you are in a negotiating position like that, you work it for a lot more than the USG did.

Specifically, you have the moral obligation to negotiate that position for the benefit of citizens at large. The government did not do even really attempt to do that, which is a political crime for which there has not yet been a reckoning.


The objective was to prevent collapse. The return was just a bonus. It would have been the height of irresponsibility to lose time while negotiating a bigger vig for the tax payers as the financial system burns to the ground. A 25% return in two years is nothing to complain about and if the return had been say 50% it would still be almost completely unnoticeable to the tax payers.

That doesn't mean it was right to not change the source of the problem after the crisis, but that's a whole other debate.


> So you have no problem with the Secretary of the Treasury being the VC in chief for the US, deciding what companies are worthy of investment?

Nope, but the bank deals were much less evil than the auto bailouts, and not just because the auto bailouts are going to lose 10s of billions (or is it 100s) of dollars.

And then there's barney frank and chris dodd, the lead protectors for fannie and freddie (who we now know lied about their subprime exposure). The former will finally leave congress this year and the latter left in 2010, but is now pushing SOPA for MPAA.

Solynda et al is somewhere in here.

And let us not forget lightsquared, the folks who are trying to screw gps.


> You should also note that the US Treasury ended up making $12B on that deal after repayments.

Never rely on reporters from CNN to do arithmetic. This is the daily TARP update:

http://www.treasury.gov/initiatives/financial-stability/brie...

From http://www.treasury.gov/initiatives/financial-stability/brie...

Edit: And for the record, that is from the US Treasury, who you know is going to put it in the best possible light(ie, least loss of $$).


It is top-down resource allocation, plain and simple. Very interesting for a country that calls itself a "free market capitalism". I guess that is true to the point that those at the top are free to invest the money as they like (and even "take risks" with it).


The US Government did a horrible job of negotiating the refinancing of the banks. If they were smarter, they would have hired a tough distressed-debt guy and got a deal that was doable, but made it clear to the bank management that they were no longer in the driving seat.

Even if they hadn't driven a hard economic bargain, the government could still have imposed salary/bonus restraint. The argument that the banks had is that everyone would leave : The reality is that in a hyper-regulated business, the government/FINRA could just politely suggest that people either stayed in their current jobs (to comply with their regulatory duties, etc) or leave the industry...




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