Blog on the Run: Reloaded

Thursday, August 20, 2009 8:17 pm

About bloody time

Once again, Rep. Alan Grayson, D-Fla., is stepping up, and now he has help:

Citigroup Inc.’s $301 billion of federal asset guarantees, extended by the U.S. last year to help save the bank from collapse, will be audited to calculate losses and determine whether taxpayers got a fair deal.

Neil Barofsky, inspector general of the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program, agreed in an Aug. 3 letter to audit the program after a request by U.S. Representative Alan Grayson. Barofsky will examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses.

The Treasury, Federal Deposit Insurance Corp. and Federal Reserve provided the guarantees last November, when a plunge in Citigroup’s stock below $5 sparked concern that a run on the bank might rock global markets and impede an economic recovery. New York-based Citigroup paid the government $7.3 billion in preferred stock in return for the guarantees.

“What kind of toxic assets did the Federal Reserve guarantee, and what off-balance-sheet liabilities have been pinned on us?” Grayson, a Florida Democrat who sits on the House Financial Services Committee, wrote yesterday in an e- mailed response to questions on the audit. “How much money have the taxpayers already lost? We need to know.”

Citigroup’s guarantees are among $23.7 trillion of total potential government support stemming from programs set up since 2007 to ease the financial crisis, according to a report last month by Barofsky’s office. The “total downside risk” from Citigroup’s asset guarantees is about $230 billion to the Federal Reserve alone, Grayson said in a June 24 letter to Barofsky requesting the audit.

A few thoughts, in no special order:

  • Every single transaction undertaken under TARP should be audited. No exceptions, no mercy.
  • The loans on Citi’s books need to be priced at their true market value, right now. And if the result is that Citi is insolvent, which would not in the least surprise me, then nationalize it, shut it down and sell it off.
  • We can afford to put ourselves on the hook for $23.7 trillion to bail out a lot of banks that should have been allowed to fail, but apparently we can’t afford $100 billion a year for health-care reform. That’s some whacked-out math. There may be good reasons to oppose any/all of the currently pending bills, but “We can’t afford it” definitely isn’t one of them.

Blog at

%d bloggers like this: