It was one of those weekends, again. We wake this am to news that CITI is subject to a massive bailout package. Of course we knew this was coming, but the details were unsure. The good news, they got help, the bad news, they needed it. They are taking just over of $300 billion of assets and separating them out. It seems no change in management will occur.
“And so we need to understand the significance of that guarantee. The significance is as follows: Once Citi owns $312 billion in assets on which they can only lose $42 billion the remaining pool must be worth $270 billion. That $270 billion is guaranteed by the US Government – as the FDIC is a full faith and credit organisation. Citigroup can put that $270 billion (plus the $42 billion in non-guaranteed assets) in a pool and repo it – and as Treasuries yield very little they will wind up paying well under a percent of interest. The Sheila Bair decision was equivalent to a cash injection into Citigroup of 270 billion because the repo-market will turn government guaranteed loans into cash.” (full piece) Holy smokes. Holy, holy, smokes. More on the FED’s quantative easing here. Key quote, “Now we are back to using money in a brute force fashion, but with no benchmarks. Lovely.”
A lot of news also came out of Washington Friday and through the weekend – Obama will appoint New York Fed President Timothy Geithner for Treasury Secretary’s post. Hilliary Clinton wil be appointed as the Secretary of State. Larry Summers will be chosen as the Director of National Economic Council. Bill Richardson might be chosen as the Commerce Secretary. President’s Economic Team will be named on Nov 24. I am happy about Geithner but I have concerns over Larry Summers. Yes over his comments about women’s innate abilities to succeed but also because I hear from lots of people that know him that his ego is MASSIVE. Do you really need smart GUYS who think they are right all the time advising us on what to do right now? Is that now what got us in to trouble in the first place? The leadership that is going to lead us out of this mess is decisive yet INCLUSIVE leadership. Leadership that invites alternate views to the table yet is able to quickly and thoughtfully drive to consensus. I think that is more Geithner then Summers but I am told there is no doubt that Summers will be in the driver’s seat. I am also told he is a true Keynesian so the fiscal stimulus is coming.
Oh my gosh I could write forever – I am trying to get my next newsletter off so this will just have to be enough for this early morning.