Citigroup bailout sheds light on just what the taxpayers are buying

Posted Nov 29th 2008 1:40PM by Bruce Watson
Filed under: Citigroup Inc. (C), Bank of America (BAC), Amer Intl Group (AIG), Financial Crisis

We are unfortunately not privy to the backroom deals and promises that are passing between Treasury Secretary Henry Paulson and the honchos who are benefiting from the government's massive bailout. However, two things are becoming increasingly clear: first, the financial industry has not gotten the memo about changing their business practices, and, second, the $700 billion in tax money that is keeping these companies afloat is not finding its way down to the average citizen. The big bailout was originally sold as a desperate maneuver to keep Wall Street afloat. Paulson has indicated that these funds would enable lending companies to service their toxic debt and, in turn, continue lending. In this way, America would be able to count on the credit that kept it running; businesses would be able to meet their payrolls, people would be able to buy houses, and the world would continue to turn.

Instead, some banks seem to be going on a buying spree, snatching up smaller, less successful institutions while prices are low and the getting is good. Citigroup (NYSE: C), for example, used the Wall Street fire sale to make a bid for Wachovia and pick up Forum Financial, shortly before asking for a second huge bailout. Similarly, Bank of America (NYSE: BAC) has decided to take over Merrill Lynch. A clever MBA could, undoubtedly, filter these purchases through a secret capitalism decoder ring and come up with a logical reason for them, but one wonders how gobbling up companies (and their toxic debt) is likely to help Bank of America and Citigroup to stay afloat, much less enable them to extend money to consumers. It is becoming clearer and clearer that the huge influx of taxpayer money is less about saving consumers than it is about enabling big companies to get even bigger.

At the same time that they are cannibalistically gorging themselves on each other, major financial institutions seem to be in a desperate contest to see who can waste the most money. Currently, the leader is AIG (NYSE: AIG), whose corporate retreat expenditures make Caligula look like a Puritan. While the company's president has gone out of his way to present these events as education seminars, he has largely failed to explain why they needed to take place at pricey spas, rather than an airport Marriott. Admittedly, when we're talking about debts that run into the trillions of dollars, quibbling over a measly couple of hundred thousand for a sybaritic holiday might seem a trifle cheap. However, as taxpayers struggle to buy foodstuffs and Christmas presents, these sorts of minor expenditures cast large shadows.

Even AIG's idiocy, however, pales in comparison to Citigroup's dogged determination to thumb its nose at taxpayers. As it begs for yet another bailout, the financial giant continues its plans to pay $400 million to put its name on the New York Mets' new stadium. The irony of this is priceless: Citi is using tons of taxpayer money to stay afloat, yet apparently expects that these taxpayers will be impressed by its name on the stadium used by New York's lesser-known team. In all likelihood, however, the name will stand as a permanent reminder of a company whose business model is mired in an earlier century.

Ultimately, the problem is one of perspective. For millions of Americans, a traditional time of spending and splurging has become a period of scrimping and saving. As they learn that the bailout may ultimately cost tens of thousands of dollars for every man, woman, and child, Wall Street's profligate spending cuts particularly deep. Whether this will be forgotten in a few months or will form the basis for a generation of distrust remains to be seen, but there is no doubt that the financial sector is desperately out of touch with its potential customers.

Tags: AIG, BAC, bailout, Bank of America, Citigroup, featured, Merrill Lynch, Mets stadium, Paulson, Wachovia

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Reader Comments (Page 1 of 1)

11-29-2008 @ 2:46PM

john said...

Bruce, it is hard to believe anything in your article when you don't get the facts right. Citi did not buy Wachovia, Wells Fargo did. Citi putting their name on the stadium was contracted way before all their problems. BAC buying ML was done this summer before BAC asked for any money. At the time the FED was happy ML did not fail. If you want to write articles like the one above I suggest you stick with fiction.

11-29-2008 @ 3:32PM

sherry said...

We have to look at "the big picture." The days of tunnel vision are over. Our nation better wake up and smell the coffee. With all our bail outs along with the 168 billion economic stimulus package, that btw did nothing for our economy it is hard to understand why our government can't see the need to bail us out of our dependence on foreign oil. I am appalled at news stories of green technology losing hope of being furthered because of lower gas prices. How long does anyone really think this decline will last? OPEC holds the key and we are at their mercy. They just cut 2 million barrels in production a day and vow to cut more if prices don't rise again. Instead of spending billions upon billions on bailouts, why don't we instead invest in renewable energy. We have GUARANTEED returns if we do this. I just read a fascinating book by Jeff Wilson called The Manhattan Project of 2009 Energy Independence NOW . I highly recommend this book for anyone interested in seeing our country become energy independent. He has a web site he can explain it better than I .. www.themanhattanprojectof2009.com

11-29-2008 @ 4:20PM

Bill said...

What is the solution? REGULATION!!! Regualtion in the size of banks and now financial institutions to keep them competitive. Return to yesteryear when banks were regional and competitive. With the Fed offering banks money at 1%, we should see prime at 3%. Credit card companies despirately need federal regualtion with their predatory rates. Will it happen? No, we have created a monster that can buy whatever laws they need or desire.

11-29-2008 @ 5:08PM

Kate said...

At GE bank I was 2 days late with a payment and my interest rate went to 28.99%!! I called and asked if it could be reduced and the answer was NO. 6 months of timely payments would lower the interest rate. Apparently 5 years of payments made on time, didn't make up for one 2 day late payment. BANKS SUCK. Yes, please, let's give the banks more free money to screw over the taxpayer. Shouldn't I receive bail out money since I'm in a world of hurt trying to pay off high interest credit cards? It's the big boys that get money (the companies that donate heavily to politicians) and the rest of us simply get screwed.

11-29-2008 @ 6:11PM

exectown said...

The top dogs cannot get this bank in order or they are afraid to make the hard decisions of letting employees go or departments that should close because of poor performance. Forget, about having their names on a Stadium, perks should be eliminated all together. The employees that are left should be happy they have jobs. As long as Paulson gives these banks free money, they will never get the house in order, no bonuses, no raises. They should be asking employees to take a decrease in salaries until they become profitable with cost cutting strategies, which will not very hard. We work hard for our money, these banks should have been saving for a rainy day. If they dont have the funds for rough times and are afraid to cut to the bare bones, then they should not have our hard earned tax dollars. Is Paulson asleep at the wheel, he should be the next lunatic to go. Every other day, the story changes.

11-29-2008 @ 11:05PM

Owner said...

Bank bailouts, but "no can do" on a loan for US manufacturing... What are we going to have left to invest in if policy makers give it all away....
No One has to earn anything...?
Wake up America! God Bless!

11-29-2008 @ 11:40PM

benrubin said...

i can't believe that the ceo's from aig,lehman & citigroup are not being fined a\or sent to jail. if none of them go to jail, then sce'y paulson should go in their place. he is as much a crook as they are.

11-30-2008 @ 12:52AM

BHarrison said...

". . . there is no doubt that the financial sector is desperately out of touch with its potential customers." The financial sector cannot survive and prosper by cannabalistic business practives either.

They have forgotten both their customers and their investors; the bailout monies have temporarialy replaced the need for investors. This is becoming an absolute stripping of the market.

Likewise, Congress has become totally incompetent and corrupt; they are nothing more than politicians without any insight into the reality of the economics of this melt down. They've put Paulson, one of the "old dog CEOs" in charge of the recovery and disbursement of the bailout monies . . . he certainly is too intertwined with the old CORRUPT CEOs to address these problems effectively.

Why haven't the old Anti-Trust Laws been applied to the financial sector of our economy? There should be no business enterprise so large that our society cannot afford for it to go into bankruptcy. Congress has done nothing to address this problem, esp. with the ongoing buyouts.

This entire economic crisis was made possible and perpetuated by a Congress who failed to take timely prudent actions to prohibit and curb the actions that enabled the massive fraudulent pyramid and Ponzi schemes by our major corporations. It is Congressmen like Brney Frank (D-MA), Mel Martinez (R-FL), Ms Pelosi, and Mr. Reid, etc. who ARE responsible for havling allowed and perpetuated this debacle to occur.

11-30-2008 @ 9:45AM

D Nelson said...

We are in the process of changeing all of our money transactions over to a credit union. Its my way of not dealing with the outlaws of the nation.

11-30-2008 @ 12:54PM

Nancy said...

This is to Kate (number 4). You think that's bad. Bank of America really sucks. They think my income isn't enough (I now live on a disability check.) Soooooooo, because they noticed that I only make the minimum payment....that's what they ask for.....they raised my interest from 13% to 21%. I am being penalized for making the minimum payment ON TIME! And get this, they keep sending me notices that my credit limit has been increased to an amount that I do not need nor request! I wrote them a letter to no avail. Kudos to Bank of America!!

12-01-2008 @ 4:45AM

aj said...

WE ALLL KNEW THIS WAS COMMING YEARS AGO. wE ARNT BANKERS EITHER. MAKES YOU WONDER WHAT IS REALLY GOING ON IF SO MANY PEOPLE PREDICTED THIS WOULD HAPPEN. THATS WHAT IS SO STRANGE ABOUT ALL OF THIS . PAULSON ,CEOs, AND CONGRESS CANT BE THAT STUPID?

12-01-2008 @ 11:35PM

Clinton said...

Don't worry. Are you guy's trying to tell me that the market will keep plummeting? Well that's dumb. So you're saying that this one time in history, the stock market won't hit a line, balance and rise up again? Every single other time in history when the market was hit the same thing happened. They wen't down. Small companies went out of business, but it balanced and slowly went back up. Take CitiGroup for example. Recently the government bought 20 Billion dollars worth of stock from them at 3 dollars. Within a week that stock became worth 8 dollars a stock, over doubling the amount of money it's worth. Now the government is assured to see ten times the original value within a year.

12-04-2008 @ 9:34AM

BigTime said...

Most employees of these big banks did nothing wrong and are the ones losing their jobs. People are posting that employees of citigroup should get no bonuses or raises and just be happy they have jobs. Lets not forget that Citi is cutting it's workforce by 53,000 people. Not high level executives, i am sure, but hard working people like you and I. Many of these hard working people are paid 20 to 30% of their pay in bonus. I understand the frustration of the taxpayers paying for bailouts but cutting the jobs, pay and bonuses of the common workers for the company is not the answer. Paying 400 million to have Citi on the Mets new stadium on the other hand....that is some BS when you are getting rid of 53000 people.

12-04-2008 @ 10:43PM

concerned said...

. . . --PEOPLE OF AMERICA: . . . . . . . WE CANNOT COUNT ON OR USE OUR ELECTED REPRESENTATIVES ANYMORE!!!!!!!. . . . . . . .. .THE ONLY SOLUTION FOR US TO REMAIN A FREE AMERICA IS TO MAKE A STAND NOW!!!!!!!! My suggestion is we ALL, including myself, all begin our legal non violent protests at the white house beginning on inaugeration day and ends when OUR government reconizes our plight and conforms to the greater of all and NOT the rich 10%!!!!!!!.

12-10-2008 @ 9:09AM

Timothy Miller said...

When there is a natural disaster and businesses raise prices it's called gouging. When Citi gets caught up by its own stupidity they get bailed out with MY tax dollars. Oh and by the way they also have to "regretfully" raise the interest rate on my credit card from 5.99 to 14.99% min. The funny thing is, they are acually doing me a favor by helping me curb my spending. Suggestion: opt out of Citi cards!

12-10-2008 @ 9:13AM