The financial weirdness continues this week with a plan--or proposal, maybe--hatched Sunday night to give the U.S. taxpayers a 40 percent stake in CitiGroup, the biggest (and arguably most insolvent) of the nation's large banking institutions.
As I've tried to explain, Citi is to financial prudence what a 1950s movie monster is to culture: tasteless, excessive, ridiculous--and dangerous only to those who live within its fictional celluloid universe.
Unfortunately, that's all of us now, and so we're forced to take seriously this sutured-together, $3 trillion beast that behaves like a cross between Frankenstein's monster and the Blob.
So today we learn that the $45 billion we've already pumped into this wasted hulk of greed and hubris--for which we've gotten so-called "preferred stock" that will allegedly pay a "guaranteed dividend"--can now be traded for common stock, with a vote attached. This has been pitched, in the New York Times, the Wall Street Journal(pay site), and other majors, as a sign of the Obama administration's seriousness. With "voting" stock the U.S. government will (almost?) control the bank, goes the theory. Which is almost like a nationalization.
The stories--leaked, apparently, by Obama administration insiders--take pains to note that no new taxpayer money would be expended.
Which is all well and good, but overlooks the fact that Citi is worth a fraction of the taxpayer money already expended. At today's stock price, claiming a 40 percent share of Citi with the cash already invested would instantly transform that $45 billion into shares worth about $4 billion.
And as Calculated Risk observes, the new common shares would be lower on the creditor totem pole than the old preferred stock, subjecting the taxpayers to even more risk of loss.
Even ubercapitalists like Alan Greenspan are waking up to the reality that a wholesale nationalization is the only way forward, yet the administration dallies, tethered like the dim characters in an old sci-fi flick to some cheesy stage set and stilted script. The charade will continue until someone breaks the fourth wall.