Grrr!

Earthside Comments: We've just been robbed.

Citigroup CEO Says In Charge of Day-to-Day Operations | Reuters

Citigroup Inc executives spoke on a conference call on Friday and said "we completely remain in charge of the day-to-day operations of the company." Highlights:

* Pandit, talking about nationalization worries, says "this announcement should put those concerns to rest"

* Pandit says regulatory oversight of Citigroup is not changing

That's what you are getting for the 'deal' Tresury Secretary Geithner just cut with the looters at Citigroup.

Citi is insolvent, it is broke -- it should be dissolved and the FDIC make good for depositors. Why is this simple fact so difficult the Washington and Wall Street insiders to figure out (unless, of course, they have and are squeezing every last dime they can possibly get out of generations the American taxpayers)?

This 'deal' should send the confidence of Americans in the future of the economy and the prospects for our 'private' banking system into an even tighter tailspin.

Grrr! Normal, average Americans should be angry and disgusted by these broad daylight robberies ... and what's more, you can count of the same or similar 'deals' coming for General Motors, AIG, Chrysler, Bank of America, and on and on.

But it is all for your own good, right?

As the rest of the news in this post shows ... you can handle it because this is surely "the bottom" and you're perfectly willing to give-up everything you have for the "good" of our national, state and local economies .. right?

U.S. to Control Up to 36% of Citi | CNNMoney.com

... The new deal Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying.

Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up pay 8% dividends, while Citi suspended its common share dividend as part of the agreement. ...

... In the deal, Treasury will convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors, such as sovereign wealth funds.

But the move will reduce the stake that existing shareholders hold in the bank to 26%. New investors will own the remaining 38%. ...

... In a call with investors CEO Vikram Pandit said the decision was difficult because of what it would do to current investors, but that the bank had little choice.

"In the end, our business is about confidence," he said. "We wanted to take definitive steps to put all capital issues aside."

Under the deal, a majority of Citigroup's independent directors will be replaced. But CEO Vikram Pandit and Chairman Richard Parsons will retain their positions at one of the nation's three largest bank holding companies. ...

Taxpayer Beware: Bank Bailout Will Hurt | Adam Davidson and Alex Blumberg/NPR

A single piece of paper may just be one of the most surprising and illuminating documents of the whole banking crisis.

It's a one-page research note from an economist at Deutsche Bank, and it outlines in the clearest terms the kind of solution many bankers are looking for. The basic message: We should forget trying to get a good deal for taxpayers because even trying will hurt.

"Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line," the document says.

In other words, the paper says, if the government tries to save taxpayers money, many people will lose their jobs and the whole economy will suffer.

The research note offers a solution any banker would love: The government should "estimate the highest price it can pay for the various toxic assets on financial institution balance sheets," then pay that price to buy them.

Another economist, Simon Johnson, a professor at the Massachusetts Institute of Technology's Sloan School of Management, wrote about this note on his blog.

"This is a robbery note!" Johnson says. "It's saying, 'Guys, either you'll have 20 percent unemployment or national debt will go up to these dangerous level, unless you buy toxic assets — not for what they're worth, not for what the market price is, as much as you can pay.'"

Johnson says his "first reaction was: It's a spoof. My second reaction was: Oh my God."

Who's Going To Lose?

We figured Johnson should argue it out by phone with Joseph LaVorgna, chief U.S. economist for Deutsche Bank and the man who wrote the paper.

Johnson was actually really nervous. He thought LaVorgna would get mad because Johnson called the research paper a robbery note. But LaVorgna was cool.

"I think the bottom line is, simply, someone has to pay for the mess that's been created. And there's no escaping: The taxpayer is on the hook," LaVorgna says.

LaVorgna is finally coming out and saying something that every other bank and lots of government people have avoided saying. They've been suggesting there's some magical recipe with which the government bails out the banks, the banks do better and the taxpayers end up making money. Everyone wins. But the research note states outright what many economists have been warning: That probably can't happen. Someone is going to lose.

LaVorgna is saying he knows exactly who's going lose: you.

"I think, Joe, I found it refreshingly honest. But it also took my breath away," Johnson tells LaVorgna during the call.

So what does LaVorgna think of referring to the document as a ransom note?

"If I was on my own, I'd say fine. But I wouldn't say a ransom note. I'd say a reality check," LaVorgna says. "Simon is exactly right. And this is the issue: We're delaying the pain. You've got to deal with the problem."

Johnson actually agrees with LaVorgna on one thing: American taxpayers are going to have to pay to get the economy out of this mess.

Johnson thinks that if the U.S. is going to spend taxpayer money anyway, it's ridiculous to use it to save the same bankers who caused the current crisis. He likes a different approach: where the government directly takes over banks and then sells them to new owners. Maybe for a profit, maybe for a loss.

Twin Peaks

David Beim, a former banker who is now a professor at the Columbia Business School, has something to say for people who want to pin this whole thing on the banks.

He has a chart illustrating how much debt American citizens owe, how much we all owe — with our mortgages and credit cards — compared to the economy as a whole. For most of American history, that consumer debt level represented less than 50 percent of the total U.S. economy, as measured by gross domestic product.

And then …

"From 2000 to 2008, it's almost a hockey stick. It just goes dramatically upward," Beim says. "It hits 100 percent of GDP. That is to say, currently, consumers owe $13 trillion when GDP is $13 trillion. That is a ton."

This has happened before. The chart shows two peaks when consumer debt levels equaled the GDP: One occurred in 2007, the other in 1929.

And that scares Beim.

"That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets in banks. It's something that has little to do with the mechanics of mortgage securitization, or ethics on Wall Street, or anything else," Beim says. "It says: The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us."

We have over-borrowed, Beim says: "We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."

In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.

If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don't have to pay anything, that's not going to happen.

It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn't. There is no magical solution where the U.S. gets out of this mess without any pain.

While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

Economy Likely Suffered Deeper Contraction | Associated Press/Yahoo! Finance

The economy's downhill slide at the end of last year was likely much steeper than the government initially thought and it is probably doing just as poorly now — if not worse — as a relentless slew of negative forces feed on each other, pushing the country deeper into recession.

American consumers — spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.

It's creating a self-perpetuating vicious cycle that is causing the economy to deteriorate at a rapid pace. The country is suffering through the worst housing, credit and financial crises since the 1930s.

The Commerce Department is set to release a report Friday expected to show the economy contracted at a pace of 5.4 percent in the October-to-December quarter. If economists are correct, the updated reading on gross domestic product, or GDP, would show the economy sinking faster than the 3.8 percent annualized decline the government first estimated a month ago. GDP measures the value of all goods and services produced within the United States and is best barometer of the country's economic health. ...

Fannie Taps Lifeline After $59 Billion in Losses | CNNMoney.com

Hammered by the ailing housing market, mortgage finance giant Fannie Mae said Thursday it would tap its lifeline from the Treasury Department after reporting $58.7 billion in losses for 2008.

The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.

And it gave a dour view of the housing market -- saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%. ...

... Fannie Mae had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac, which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth. ...

Those crazy Germans, uh? They should believe what their government tells them and what the banks tell them and just sit quietly and pay their taxes -- like the Americans.

'We're Not Paying For Your Crisis!' | Spiegel Online

Anger rises in Germany as the economy falls. Trade unions and globalization-critical protesters are planning demonstrations in Berlin and Frankfurt under the banner: "We're not paying for your crisis." Alexis Passadakis, 31, an activist from the group Attac, tells SPIEGEL what's wrong with the system.