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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (378474)	11/25/2008 9:55:49 AM
From: Secret_Agent_Man	1 Recommendation Read Replies (3) \| Respond to of 436258

To all; Tim Geithner as new Treasury Secretary and Citigroup's near failure and bailout dominated the news this weekend. Tim Geithner, who cares? He has been at the NY Fed pulling the levers alongside Bernanke and Paulson so he obviously doesn't have the magic formula to save the world. As for Citi, I have just a few observations. First, wasn't Citi supposed to be a potential buyer of Wachovia just 5 weeks ago? Weren't they the Fed's horse in that race? Didn't they jump up and down stomping their feet while talking lawsuit against Wells Fargo's deal intrusion? Did they have the money 5 weeks ago to purchase Wachovia? If they did then where did it all go? Money center bank, cornerstone of American capitalism goes from solid to bankrupt mush in the blink of an eye? Was it all smoke and mirrors 5 weeks ago? OK, no more questions, just a simple 2nd grade conclusion. It WAS smoke and mirrors then as it is now. It has been smoke and mirrors for so long that Wall Street, Washington, and Main St. all got lulled into believing everything from the improbable to the impossible to be the new certainty. Picking apart the Citi deal is a little bit humorous. First, Citi has already gotten $25 Billion from the TARP just recently which turned out to have been less than a band aid. In this deal Citi will get a backstop of about $250 Billion for its CDO portfolio and as I understand it this is only for their "on balance sheet assets", their "off balance sheet assets" dwarf what they show on the books. Citi will also get $27 Billion in exchange for warrants at $10.61 and 8% preferred stock. Citi closed on Friday with a market value of about $20 Billion after receiving $25 Billion just recently so this first $25 Billion has already been flushed, now the government put $27 Billion more and goes on the hook for an additional $250 Billion in guarantees? I don't get it, the government has put together a $300 Billion package for a company that the market said was worth $20 Billion [and that was Friday before a bailout]. I guess they'll deal with the bigger problem later [the off balance sheet black hole] OK so let's look at this from OUR standpoint, the citizens who are putting up the money. Treasury and the Fed have just put up $27 Billion for a 7.8% stake in a company that was valued at $20 Billion? This is paying 12.8 times the value of the $27 Billion, another way to look at it is the government is on the hook potentially for $306 Billion or 15 times Citi's market cap. I am not a rocket scientist but with this type of deal I wouldn't get in a car to the end of my driveway with the Treasury or Fed driving! What about the off balance sheet debacle? The on balance sheet goo was supposed to be "the good stuff", what happens to the "bad stuff"? AND AS ALWAYS, WHERE DOES THE MONEY COME FROM??? answer...out of thin air, the government can only borrow it. Well actually they do have another option. Once they can no longer borrow in the capital markets they will have only one option left, this option is always the last one used by every government in history that went bankrupt. THEY WILL PRINT, PRINT, PRINT! There are no other options left. I don't know how long it will take for the masses to do the math on this but when they do, the "value of a Dollar" will be so far from the old saying "as good as Gold" as black is to white. There will be continued efforts at spin, forget it, the system we knew and loved is toast. Actually toast is too polite, after this fire there will only be ashes remaining. Regards, Bill H. ft.com