A voice against the Citigroup bailout
Assuming $300 billion in toxic assets on behalf of Citigroup may be a risky move for the Treasury, according to Jane D'Arista of the Financial Market Center. She tells Scott Jagow why she's against the move.
A Citibank branch in Washington, D.C. (Mandel Ngan/AFP/Getty Images)
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TEXT OF INTERVIEW
Scott Jagow: Citigroup dug itself an enormous hole. I mean, a Grand Canyon-size hole of toxic assets. And Citigroup is probably the poster child for too big to fail. So, the government is gonna pull Citi right out of that hole. The Treasury, the Fed and the FDIC -- they have a bailout plan: Here it is: Invest another $20 billion in Citigroup. Force the bank to help struggling homeowners. And here's the big one: the Treasury will assume the risk for $300 billion in toxic assets.
We're joined by Jane D'Arista from the Financial Market Center. Jane, what do you think of this plan?
Jane D'Arista: Well, I'm not happy with the $300 billion guarantee. I'm not happy with the plan -- I think it does indicate how lax they were in oversight at the Fed to have, after all, proposed that Citibank buy Wachovia not so long ago. I think that taking the guarantee is an enormous amount of money.
Jagow: With this $300 billion, how likely is it, based on what you know, that the government will have to eventually buy these assets?
D'Arista: Definitely. That's the point. They're going to have to buy them if they give a guarantee.
Jagow: All of them? All $300 billion?
D'Arista: Well, who knows? I mean I just don't believe that this is the path for Citibank to get back on its feet.
Jagow: Then what is the way Citigroup gets back on its feet?
D'Arista: It gets back on its feet only if the Fed is willing to buy some portion of its and other banks' and other important institutions' toxic assets and give them in exchange a reserve account at the Fed that will be on the liability side of their balance sheet and act as a substitute for capital. Capital is not there, and we are looking at a meltdown in the capital of the financial system.
Jagow: And the Treasury can't do that?
D'Arista: No, the Treasury cannot do that.
Jagow: What happens if we don't do anything here, and Citigroup fails?
D'Arista: It would be an enormous displacement in the financial sector. It is a domino situation, and they know it.
Jagow: Jane D'Arista, director of programs for the Financial Market Center. Thanks so much.
D'Arista: You're welcome.
Comments
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From Kingstree, SC, 11/24/2008
Unless I misunderstand It sounds like the Guarantee will turn into a grant. Based on what I have read it appears that most of the 300 Billion will be needed. What does the Government (tax payers) get from this?
From Fort Worth, TX, 11/24/2008
Devil is in the details. Everybody is avoiding the details - congress, Feds, Executive Branch, Company Execs. Just give and get more money to instill 'false' sense of confidence. Take time to work out the details - and if that means letting one of these 'too big to fall' - so be it. The sky just does not fall suddenly. We had quite a few months to work these out. Starting with Bears Sterns - none has taken time to think though and work out a plan. Is this the way foward?
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