Ritholtz: TARP Was An Elaborate Ruse To Bailout Citigroup (Video)

Barry Ritholtz presents an interesting theory in Bailout Nation, which he discussed in more detail recently.  Briefly, he suggests the possibility that Paulson forced all the banks to take TARP funds to provide cover for Citigroup, whom he contends was the only bank that needed immediate assistance. 

While he's correct that Citigroup was (and remains) the least stable and most insolvent of all the recipients, every bank needed a psychological pop that only fresh and government-cheap capital could provide.  The dominoes were falling quickly and the grim perception was that all could be brought down by insolvency fears. 

Was Lehman any more insolvent than Morgan Stanley or Goldman, if all firms were forced to consider level 2 & 3 assets?  Of course not.  You see the reasoning and can imagine the fear it instilled in government officials.   I believe Paulson was acting to boost the perception of solvency for the entire group.  Months later, with changes to fair-value accounting, the insolvency perception remains paramount in the minds of certain analysts and bloggers, though the green-shoot camp seems happily content with 'whistling by the graveyard.'

And for the record, Citigroup has received $45 billion in TARP funds, a $306 billion taxpayer guarantee of assets, billions in recently-issued, FDIC-backed debt, access to TALF and other Fed programs PLUS at least $5 billion in payouts from AIG.   Is there anything I've missed?

Two short clips from Ritholtz including his views on the overall market and economy for the second-half of '09.

Not such good news for the 'soylent green crowd', Ritholtz says a second-half recovery is not in the cards.

Comments

[DailyBail]

Volcker: Hedge funds don’t need to be regulated like banks.

Keynote address by former Federal Reserve Chairman Paul A. Volcker to a meeting of the International Institute of Finance in Beijing, June 11:

http://www.ritholtz.com/blog/2009/06/moral-hazard-and-the-crisis/

[DailyBail]

President Barack Obama said on Tuesday that worrying about the U.S. government's finances "keeps me awake at night" and the country needed to start planning now to tackle soaring deficits.

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/16/AR2009061602610_pf.html

He's great at talking a good game but will he deliver on deficits? Very unlikely given his extremely ambitious spending plans.

[DailyBail]

44 Of 77 Students At Bradwell Elementary Did Not Pass Eighth Grade

http://cbs2chicago.com/local/bradwell.elementary.8th.2.1047246.html

Store Clerk Murdered; Customers Keep Shopping

http://cbs2chicago.com/local/Convenience.Store.Clerk.2.1047612.html

[DailyBail]

University of Colorado team finds definitive evidence for ancient lake on Mars

http://www.eurekalert.org/pub_releases/2009-06/uoca-uoc061709.php

[DailyBail]

George Soros and Robert Reich: How To Reform The Financial System

http://www.nuwireinvestor.com/blogs/investorcentric/2009/06/george-soros-and-robert-reich-how-to.html

[DailyBail]

The House Committee on Oversight and Government Reform has "invited" Ben Bernanke to come have a chat June 25. First order of business: whether or not B-nanke lubed up the Bank of America/Merrill deal by threatening harm to Lewis's employment status/kidneys unless KL did exactly as he was told (keep the Merrill losses hush hush 'til the right time, show us a smile). Presumably the Fed chair has RSVP'd that he'll be there with bells on, which is great.

http://dealbreaker.com/2009/06/bernanke-to-testify-next-thurs.php

[DailyBail]

‘Millionaire Homes’ May Lose Value Until 2012: Chart of the Day

http://www.bloomberg.com/apps/news?pid=20601109&sid=aXQ2MXGoSysw

[DailyBail]

Banks accept 66% of debt value at foreclosure auctions

http://mortgage.freedomblogging.com/2009/06/17/banks-accept-76-of-debt-value-at-foreclosure-auctions/12137/

[DailyBail]

Germany continues to blame the US for the financial crisis. Specifically our easy-money policies.

http://us1.institutionalriskanalytics.com/pub/IRAStory.asp?tag=362

[DailyBail]

CDS prices on banks shooting up again.

http://www.ritholtz.com/blog/2009/06/bank-cdswhats-going-on/