Investors excited about Treasury Secretary Henry Paulson's decision to bail out Citigroup are thrilled to see their portfolios rise in value, but some news media are reporting that taxpayers shouldn't be as thrilled:
Nov. 25 (Bloomberg)—The U.S. government's emergency rescue of Citigroup Inc. offers a new model for bank bailouts: explicitly insuring against losses on toxic assets, with taxpayers footing the bill.
The Citigroup plan extends the federal commitment beyond the previous framework of capital injections from the Treasury and credit from the Federal Reserve. Now, the U.S. is a partner in the performance of $306 billion in real-estate loans and securities, sharing losses beyond $29 billion on what are likely to be some of Citigroup's worst holdings.
According to the New York Times:
... longer term, the new bailout could haunt regulators and taxpayers. The move ultimately may encourage banks to take more risks in the belief that the government will step in if they run into trouble.
With a recession looming, if not here already, banks big and small are bracing for more loans to sour, particularly those related to commercial real estate, autos and credit cards. Many are making fewer loans, even though the industry has received nearly $300 billion from the government.
One question I've yet to see answered: Where the heck is all this money coming from? Is the government printing it as the bailouts balloon? Is it backed by anything or worth anything?
I'm thrilled to see the stock market rally, believe me. But it sure would be nice if the Bush administration would explain:
- Where the money is coming from?
- How much is the per capita cost per taxpayer?
- What will all this government borrowing do to interest rates?
- Over how long a period of time will we as a nation be paying back what we've borrowed?