The Financial Times reports that the U.S. government "is sitting on a paper profit of almost $11bn on its 34 percent shareholding in Citigroup (NYSE: C), its only direct stake in a large financial institution."
How'd that happen? The Treasury Department converted $25 billion worth of preferred stock into common equity at the end of July. Over the past four weeks, shares of Citi are up a mind-blowing 70%.
According to The Wall Street Journal, it was that conversion that led to the run-up: "Ironically, it is the exchange that made Citi a buy. In short, it solved the bank's chief weakness, a dearth of tangible common equity. Banks lacking TCE are risky stock investments because shareholders stand to be diluted by the capital raises needed to boost equity."
There are a few things to keep in mind about the "gain" on the government's stake in Citigroup. The first is that with a 34% stake, it's impossible to cash out without tanking the share price. The second point is that the "gain" is driven by a government-guaranteed loan program that leaves taxpayers on the hook if things go awry. Indeed, there's an argument to be made that our current fiscal policy is propping up Citigroup and similarly situated companies at a tremendous long-term cost to the economy. So calculating the paper profit on the Citigroup stake is too simplistic because the government's relationship with Citi is too complex.
Still, an $11 billion gain is nothing to sneeze at!
Reader Comments (Page 1 of 2)
8-24-2009 @ 11:22AM
Clint said...
545 PEOPLE
By Charlie Reese
Politicians are the only people in the world who create problems and then campaign against them..
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?
You and I don't propose a federal budget. The president does.
You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does.
You and I don't write the tax code, Congress does.
You and I don't set fiscal policy, Congress does.
You and I don't control monetary policy, the Federal Reserve Bank does.
One hundred senators, 435 congressmen, one president, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason.. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don't care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes.
Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits.. The president can only propose a budget. He cannot force the Congress to accept it.
The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? Nancy Pelosi. She is the leader of the majority party. She and fellow House members, not the president, can approve any budget they want. If the president vetoes it, they can pass it over his veto if they agree to.
It seems inconceivable to me that a nation of 300 million can not replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility. I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.
If the tax code is unfair, it's because they want it unfair.
If the budget is in the red, it's because they want it in the red ..
If the Army & Marines are in IRAQ , it's because they want them in IRAQ
If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way.
There are no insoluble government problems.
Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.
Those 545 people, and they alone, are responsible.
They, and they alone, have the power.
They, and they alone, should be held accountable by the people who are their bosses.
Provided the voters have the gumption to manage their own employees...
We should vote all of them out of office and clean up their mess!
Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.
8-24-2009 @ 11:23AM
Jim said...
Another shell game.... another diversion from what is real.... as the writer said 11 billion is nothing to sneeze at ..... guess what, that is exactly what it is, a sneeze, as most if not all traders and brokers will tell you... what is important is when someone buys and sells for a profit or loss depending on the circumstances, that is when it is critical.... sitting with a paper profit that if sold could deflate not only Citi price per share but disrupt the market all around.... need I say more ....
8-24-2009 @ 11:35AM
joe canitano said...
I'm sure soon as the Government starts selling their shares and gets out this stock will be in the tank again. Does anyone else also notice there would seem no reason for this market to be going up like it is. I think their just getting you to buy into there is no reason to be conserned and then the bottom falls out again so that they may get their hands more into the businesses.
8-24-2009 @ 12:01PM
jack said...
What Charlie Reese wrote is true. Our ENTIRE GOVERNMENT has sold us down a road. It is a road, that there are few returns from. We could do it, and should do it. The one thing that stops change, is the people who vote these crooks back into office.
You want change, but follow the Government carrot. You want accountibilty, but still follow the carrot.
There will not be any change, until people realize that we are not FREE, nor are we in power to change our Government. There have been laws written that prohibit that.
We need to remember, that freedom comes with a price. We have to let the Priviledged few know who they work for. I have asked people to require that all of our Elected Officials (from City to Washington) to resign.
The only other way to get control of our Government is to have a REVOLUTION. This would solve problems in the long run, but, in the time following the Revolution, would be total ANARCHY.
8-24-2009 @ 12:02PM
p said...
sell the shares and put half of the profit into Social Security and pay down the national debt with the rest.
8-24-2009 @ 12:10PM
tom said...
Agree with Jim AND Joe both. That 11 bn is paper only. It has no real current value. It's like a paper pyramid- just one sneeze from China or the Saudi's by hitting the 'sell' button- and we're in big time do do. And the Dow rising like it is? Nothing but insiders trading their little fingers away. No real money is being exchanged at this point. Not with consumers so depressed. Its a real shame. Bernanke and rest of the 'back slappers' will soon get a reality check.
8-24-2009 @ 12:15PM
Bob said...
we need 11 trillion not billion . This is chump change for the polititions.
8-24-2009 @ 12:22PM
kaz said...
Charlie Reese your a simpleton if you think that the collective "we" can ever act in unison to do anything like voting all the "rascals" out of office then voting a whole group of honest "non-politicians" whos only interests are whats good for the country into office. There is no simple solution. We are are materialistic country that has gone astray from the basic fundamental ideals of honesty, descency, humbleness and generousity. As long as most individuals want to live outside of their means our country will always be broke. The only solutions are what is happening now, namely recession and depression. They are natural solutions. Just like sickness and realization of mortality sometimes "wakes" people up.
8-24-2009 @ 12:38PM
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8-24-2009 @ 1:13PM
Kevin said...
obama will figure a way to waste it too!
8-24-2009 @ 1:17PM
Gary said...
hold it and finance health care !!!
8-24-2009 @ 1:41PM
Paul said...
These numbers are Not correct since the Government has been twiddling the numbers and proping up the markets with False profits. The only way these numbers would mean anything other than a Tax payer Bailout is if the whole Economic Meltdown was Rigged. Just do the Math
8-24-2009 @ 1:42PM
Nick Cresty said...
@Kevin: How about dubya's two trillion wasted on unnecessary war? Throw in another trillion and a half in wasteful tax cuts? You wingnuts talk about history vindicating GWB in 100 years and condemn a new prez in 6 months? What a hypocrisy you guys spew around... Geez
8-24-2009 @ 1:50PM
ricvelazquez08 said...
the sad thing is that the press claims that the tax payers has a stake in these companies that were bailed out with our tax dollars but we the tax payers don't get a penny back. the goverment keeps all the money as usual and as usual we got screwed, nothing new really. we bail out the rich but when the tax payers want a loan we are denied for our credit is not good enough. the goverment is quick to take our money but when it come to giving it back Forget about it "Only in America"
8-24-2009 @ 2:08PM
dan said...
As this article states, in no certain terms, the market is being driven by paper because the customer, who is 70% of the market, has no buying power, since credit has dried up and housing prices are falling , nothing to borrow from. The government is propping the stock market up, which is not a bad thing short term.
However, our credit driven economy is history because the derivative game is over,, thank god, and it's time to get back to real economic recovery of manufacturing something that produces real incomes and a GDP, not this fake trickle down, free market created out of the thin air by the neocon, neoliberal elite for Wall Street investors which has nothing to so with main street. Wall Street has to much power in our economy and needs to be scaled back or we will continue to slide into economic turmoil and eventually a citizen revolt.
It is also the driving force in higher health care costs, another bubble, that is slowing our economic recovery because to much money in being spent on it and the costs need to be rained in buy a competing government plan that has a low overhead and can negotiate drug prices.
8-24-2009 @ 2:24PM
dan said...
I find it kind of ironic that when you look at the health care town halls it mostly old white people sitting there and complain about losing the free health care they have been getting. But who are the people running the government, mostly old white men, and who is are mostly running the health insurance companies, it's old white men.
They are losing their power and that's what's driving all this stupid racist talk that has nothing to do with fixing the problems we have. I'm 62 and I've been seeing it my whole life, it's the I got mine and screw you syndrome. People get a grip we will all have health care and we all will pull together and make America a better place if you stop all the scare tactics and get a grip on reality.
8-24-2009 @ 2:31PM
Brian said...
So, thanks to Geithner WE THE PEOPLE have a profit, but we can't afford to take it out without tanking Citigroup? Isn't if fair to assume this may be true of our other "investments" this brilliant crew made in other banks and AIG?
Sounds as though our Treasury Secretary and his boss may have difficulty even balancing their checkbooks.
8-24-2009 @ 3:43PM
stonewall1947 said...
Does that make the tax payers more money or the gov;t? also now the gov't is breaking the monopoly laws, they are making the rules and reaping the profits. Thats unfair compition
8-24-2009 @ 3:44PM
Bothepro24 said...
I agree with Charlie Reese and the 545. They have due to our own apathy created laws and budgets without input from those they represent. Why don't they ask, simple, we don't tell them. Remember, we elect these misfits. But in the last 40 years, we have become apathetic regarding politics and elections. If only 40% of eligible voters vote mid-term elections, how can change happen. Incumbents have such power because we don't stay in touch or raise questions. For two long everyone with a job was happy to see his 401K going up, values of their homes going up, buying the second home, and retiring early, why, because of the fake value of everything. And this was allowed to happen because we choose not to vote. Well, now's the time, Republican and Democrat, should all be voted out, gone will be seniority, gone will be pork barrel politics, returning will be people who do the biding of those who elected them. If we don't, as an entire country, make these changes soon nothing will change. The giant beareaucratic government will continue to do as it sees fit, not do as we the people see fit. 2% of the elected officials in Washington actually take with the people of their district. They talk with administrators that only talk to financial supporters. If you like the way things are going, do nothing, if you want to take YOUR country back, stand up, vote, and vote out everyone, let's start all over. The lobbyists won't know what to do, remember, we can't fire the lobbyists, but we can drive them out by telling our representative we won't elect anyone who seeks to side with any SPECIAL INTEREST. There is only one interest, that of the American citizen. It is time for WE THE PEOPLE, to stand and get of government of the people, by the people and for the people!!!!!
8-24-2009 @ 3:59PM
stonewall1947 said...
in reply to bothepro. To point out the flaws in your belief. The media normally decides whom they will back and give favorable reports in that direction. Example Mccain and Palin were both rediculed about the least important stuff, but no-one in the media made a concerted effort to verify Obamas birth certificate. Plus the money shakers of the world support the ones that back them. The good simple honest politician can not afford the press cost needed to get elected. Apathy was brought around because people know this in their gut. When it cost hundreds of millions of dollars to get elected, the money shakers foot the up front money and then are paided back with the taxpayers money.