Step One in Screwing the Taxpayers

When President Bush was pushing for his massive bank bailout plan, the concept was for the government to take a stake in the failing banks and eventually make money for taxpayers.  I was not in favor of the bailout  because I knew that in the end, the taxpayers would get nothing.

The new scheme for Citi to get more government funding is step one in this process of screwing over the taxpayers.

When the government gave Citi $45 billion of taxpayer dollars in the TARP package, it got warrants for preferred shares.  These could be converted to common stock, which could then be sold by the government, hopefully at a profit.

Now, Citi is in need of more money, and their plan is to have the government to convert their preferred shares of common stock, at or close to the current share price of $2.50.  This will give Citi about $45 billion in cash and the government would become the shareholder of 40% of the company.

When the TARP was enacted, Citi’s share price was just below $20, so in order for the taxpayers to make money, we would have to convert the shares above that price.  By converting them at $2.50, we are taking a 88% loss! 

Serving the best interest of Citi is NOT the protection taxpayers were supposed to receive in the TARP program!

Also, the bigger side effect of the government becoming a 40% shareholder in Citi is that we will not be able to let it fail or nationalize it.  If either of those occur, shareholders (taxpayers) are wiped out.  We will have to keep pumping more money into the failed bank, keeping it on life support.

The bank bailout was a horrible program and idea from the start.  We were sold the fact that the taxpayers would be protected by taking a stake in the failing banks, and then selling the stake for a profit down the road.  This new plan by Citi is a direct contradiction of these protections, and is the first step of screwing over the taxpayers.  This turns the plan into a huge transfer of wealth and a direct giveaway to banks.  We will never see a penny of returns on the $700 billion we “invested” in the failing banking industry.

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