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Taxpayers to make $8 billion off of Citibank?

chart-of-the-day-us-govt-stake-in-citi-2009-2010.gif

Joe Weisenthal and Kamelia Angelova note that Tim Geithner's Citibank rescue has turned out to be a pretty good deal for the taxpayers. The government is selling off the stock this week, and netting a tidy profit of $8 billion. And that's not all! Dan Gross thinks we might end up making money on the AIG intervention, and even if we don't, the losses are likely to be very small.

When all is said and done, the financial rescue will probably cost about a percentage point of GDP, and maybe even a bit less than that. Compare that with the savings and loan rescue in the 1980s, which cost 3 percent of GDP, and we're doing okay. Now, the damage the financial crisis did to the actual economy is huge, and I don't want to play that down. But the bailouts themselves are going to end up being a fairly modest contributor.

By Ezra Klein  |  March 30, 2010; 11:36 AM ET
Categories:  Financial Crisis  
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Comments

"Taxpayers to make $8 billion off of Citibank?"

Not unless they're going to be cutting as a check. Otherwise, the taxpayers aren't going to make anything off of Citibank.

Posted by: Kevin_Willis | March 30, 2010 11:42 AM | Report abuse

Kevin - That is petty, you can do better than that.

Posted by: nisleib | March 30, 2010 11:58 AM | Report abuse

@KW: Isn't this buy low sell high? The people buying citibank stock will be cutting the checks.

Posted by: srw3 | March 30, 2010 11:58 AM | Report abuse

Ezra

You're right. Thank god for George w bush starting the bailouts

And to kevins point we all know the govt will find a hammer or two to spend the $8 billion on

Posted by: visionbrkr | March 30, 2010 12:10 PM | Report abuse

Ezra

You're right. Thank god for George w bush starting the bailouts

And to kevins point we all know the govt will find a hammer or two to spend the $8 billion on

Posted by: visionbrkr | March 30, 2010 12:10 PM | Report abuse

Aren't Citibank's profits largely driven by their access to Treasury programs? I'm thinking of things like the zero interest loans being given by the feds.

I don't really understand this stuff--just instinctively, it just seems like we should look at ALL the inflows of public capital into the banks, not just the bailout. Otherwise we might let bookkeeping convince us that the banks had done our economy a mitzvah when it's actually the other way around.

Posted by: theorajones1 | March 30, 2010 12:18 PM | Report abuse

The important point, I think, is that the opponents of bailouts talked about them as a trillion dollar increase in the deficit. It's now becoming clear that A) the bailouts made the crash much less horrible than it could have been, and B) the added deficit from the bailouts will be much smaller than initially expected. That's good news.

Posted by: MosBen | March 30, 2010 12:31 PM | Report abuse

Check out Dean Baker's critique of this assertion (excerpts and link to full post below)

The Washington Post is anxious to tell its readers that the government made a profit on its bailout of Citigroup. This claim gives a whole new meaning to the notion of "profit." The government gave enormous amounts of money to Citigroup through various direct and indirect channels. It is only getting a portion of this money back in its "profits," the rest is going to Citigroup's shareholders (e.g. Robert Rubin) and its millionaire executives who are highly skilled at getting the government to hand them money...

...First, it is worth noting how the government got the shares of common stock which it is now selling for a profit. On November 23, 2008, the government bought $20 billion in preferred shares in Citigroup. It also received another $7 billion in preferred shares in exchange for guarantees on $300 billion in bad assets. At the time, the combined value of the investment in preferred shares and the guarantee on bad assets exceeded the full market value of Citigroup stock on November 21st, the last trading day prior to the deal. In other words, for the same financial commitment that the government made on that day, it could have owned Citigroup outright...

...The logic of the Post's assertion that the profit on Citigroup stock validated the bailout is not clear. By making capital available to Citigroup at below market rates, the government effectively subsidized the income of Citigroup's shareholders. It also allowed its top executives to make millions of dollars because they were smart enough to be able to get taxpayers to subsidize the bank. The current market value of Citigroup is $123 billion, with only $33 billion belonging to the government. This means that the government has effectively given $90 billion (@ 25 million kid-years of health care provided through the State Children's Health Insurance Program or SCHIP) to Citigroup's shareholders and billions more to its executives by not demanding a market price for its support. ..

...In telling readers that the profit on Citi stock "would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic" the Post is ignoring all the other costs born by the government in allowing Citigroup to be restored to viability. It is also ignoring the enormous handout of taxpayer dollars to some of the richest people in the country. This is not good reporting.

See the full post here:
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=03&year=2010&base_name=did_the_federal_government_mak

Posted by: nwoo | March 30, 2010 12:35 PM | Report abuse

@nsleib: "Kevin - That is petty, you can do better than that."

No, that's correct. Tax payers aren't actually going to be getting anything. Unless you consider, "Remember all the money we were going to be taking away from your grandchildren to pay for what we just did? Well, now we won't be taking as much. Your welcome." to somehow represent a boon for taxpayers.

For something more in depth on the idea that there's actually any profit at all, see nwoo.

Posted by: Kevin_Willis | March 30, 2010 1:34 PM | Report abuse

@MosBen: "It's now becoming clear that A) the bailouts made the crash much less horrible than it could have been,"

And the War on Terror saved us from a giant nuclear mushroom cloud on the horizon.

Or maybe not. It's actually kind of hard to prove a negative, so saying that "it's now becoming clear that the bailouts made the crash much less horrible" really mean that "it intuitively feels like the bailout really helped, and things would have been much worse without it".

But, it's good news. Expect more good news (if questionable math) on the way to November. ;)

Posted by: Kevin_Willis | March 30, 2010 1:38 PM | Report abuse

ditto nwoo

Posted by: rglvr | March 30, 2010 2:42 PM | Report abuse

@Kevin_Willis
No. It isn't hard to prove a negative. If you are standing in front of a speeding truck that you don't see and you don't move, you will be killed.

If I push you out of the way or yell, your life will most likely be saved.

Action caused the Recession and action is getting us out of it.

Posted by: eternalemperor | March 30, 2010 4:12 PM | Report abuse

Don't forget the Billions of tax credits that we gave them!

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121504534.html

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

Posted by: marteen | March 31, 2010 10:42 AM | Report abuse

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