Mr. Geithner’s new bailout plan:

This plan is sheer genius. The bank executives have earned their bonuses again. Here is what I would be doing if I were Citi.

Step 1: I would set up a new entity, say a Structured Investment Vehicel (SIV) and call it $chiti. I doubt the banking regulators will think there is anything strange with this name.

Step 2: I would place 10 billion dollars of TARP funds into $chiti. This money, which the government gave Citi, comes in handy for setting up these off balance sheet companies.

Step 3: I would instruct my lackey at $chiti to bid on $250 billion dollars of bad assets in Citi. These assets are not worth $250 billion, that is their face value. That means, that Citi paid $250 billion dollars to buy these assets. The problem is they are only worth between 7 and 10 billion dollars. $chiti would not bid $250 billion dollars for these gems. No, anyone could tell these mis- understood assets must be worth at least $300 billion dollars. So $chiti places a bid for $300 billion dollars.

Now at this stage, one of two possibilities can occur. Some fool may bid more than $300 billion for the bad assets at Citi, or option 2, $chiti wins the bid and gets the assets.

Let’s go with option 2 first. $chiti wins the bid, and now needs to come up with $290 billion dollars (remember it only has $10 billion in it right now) to buy Citi’s bad assets. This is where the government comes in. Tim’s plan lends and “invests” the other $290 billion.

So, now at Citi, I make $50 billion dollars of profit as I get $300 billion for assets that were originally worth $250 billion.

$chiti does not fair quite so well, as the assets it bought are worth no more than $10 billion dollars. So over time the loan the government gave me through Mr. Geithner goes bad, and $chiti goes bankrupt. Unfortunately Citi loses its $10 billion investment in $chiti.

So to recap. I get to shift $250 billion dollars of stuff that is probably worth only $10 billion dollars, to you the tax payer. Citi gets a $50 billion dollar profit from the sale, and $chiti gives Citi a $10 billion dollar loss. As a result I (Citi) make $40 billion dollars. Not bad, and definitely worth a $1 billion dollar bonus for engineering that plan.

Now let’s look at that first option. Someone else bids more than $300 billion for Citi’s assets. I know it is unlikely, but you never know. Assume they bid $310 billion. Well then, Citi makes $60 billion in profit and it quietly shuts down $chiti and takes back the $10 billion in it. So overall I make $60 billion in money (the $10 billion coming back from $chiti does not count as profit it is really just moving an asset).

So either way, Wall street can now engineer enormous profits for this year. Bonuses will be back with a vengeance. Everyone is happy. Until that tax bill comes due.

In reality Citi probably won’t be so blatant as to buy their own assets. They will collude with Bank Of America and JP Morgan and other banks, with the help of Geithner, to buy each others’ assets. This way it all appear kosher, while the taxpayer is fleeced for vast sums of money

Related Posts:

• A brilliant explanation of Goldman Sachs’ methods:
• Citigroup, Inc. (C)’s real revenues in the report:
• 10 Reasons Obama will raise taxes:
• Making sense of the bailout and Vote against it
• If you want to come to China and you’re single and white and speak English, all you’ll need is $1500 plus a plane ticket. No shit.

Leave a comment