The Mother of All Bailouts

Sunday night's announcement of another bailout of Citigroup came as no surprise, but the potential size goes beyond anything we've seen up to this point. It also stretches the finances of our government to the breaking point.

The deal adds another $20 billion from the Troubled Asset Relief Program (TARP). This is on top of the $25 billion they got last month. The expensive part, however, is the government's agreement to protect a $306 billion pool of Citi's "troubled assets," by paying for 90% of losses in excess of $29 billion.

This required contribution from several government agencies, and creates a real threat to the finances of our government. Under terms of the deal, the government's share of the $306 billion will be paid by Treasury ($5 billion), the FDIC ($10 billion), and the remainder by the Federal Reserve.

The Federal Reserve is already highly leveraged, and "if the Federal Reserve Bank were a commercial lender, it would be a candidate for receivership, based on its capital ratios," according to an article in Barron's this past weekend. The Citigroup agreement only makes matters worse.

Bush was enthusiastic in his support of the plan this morning, saying "The first step for recovery is to safeguard our financial system." Referring to the Citigroup rescue, Bush said "We have made these kind of decisions in the past. We made one last night and if need be we will make these kind of decisions to safeguard our financial system in the future."

So, after the spectacle of having the CEO's of GM, Ford, and Chrysler appear before Congress last week, we have a quick weekend deal behind closed doors that will cost far more than the $25 billion requested by the automakers. With the Citigroup bailout, there aren't 2.5 million jobs involved, but some things are more important than rising foreclosures and unemployment.

As it turns out, Bush's "trickle down" ideology applies to government bailouts as well as tax cuts for the wealthy. Citi's largest shareholder, Saudi Prince Alwaleed bin Talal, expressed his appreciation, saying "following that action Citi is now 'well-capitalized.'" The value of the Saudi Prince's holdings went up by more than $500 million today.

Not bad for a non-union worker.