Right, we rally on yet another bailout, this is just false hope people, wake up, how much money will they continue to print, it might be good news for the few fools who think this is the way the credit crisis should be fixed, but you have to kidding yourself if you actually believe this is the way to go about doing this. Doing this today is going to have a huge drawback in the years to come. Anyone who thinks this is a positive for the economy and wallstreet is an idiot. Citigroup rescue bringing hope to global investors David Enrich and Carrick Mollemkamp | November 25, 2008 Article from: The Wall Street Journal THE US Government's $US300 billion ($475 billion) rescue plan for financial services giant Citigroup was greeted with cautious optimism. 25nov-citi Traders work at the Citigroup kiosk at the NY Stock Exchange. Picture: Bloomberg Investors hoped it would return stability to the global financial system. Investors in Australia embraced the news, with shares reversing early losses to close higher and the main European markets in London, France and Germany opened more than 3 per cent higher. If the Government's rescue plan is a success, it could help bring stability to the entire financial system. If it does not, even deeper doubts about the industry's future could spread. Initial reaction from the US, however, indicated uncertainty about the effectiveness of the plan with futures contracts suggesting a slight fall on Wall Street. The US Government has agreed to rescue Citigroup by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant. The agreement marks a new phase in government efforts to stabilise US banks and securities firms. After injecting nearly $US300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions. Citigroup is one of the world's best-known banking brands, with more than 200 million customer accounts in 106 countries. Its plunging stock price threatened to spook customers and imperil the bank. After a weekend of marathon talks between Citigroup executives and top federal officials, the parties late on Sunday night nailed down a package in which the Government will help protect the company from its riskiest assets. Under the plan, Citigroup and the Government have identified a pool of about $US306 billion in troubled assets. Citigroup will absorb the first $US29 billion in losses in that portfolio. After that, three government agencies -- the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp -- will take on any additional losses, though Citigroup could have to share a small portion of additional losses. The plan would essentially put the Government in the position of insuring a slice of Citigroup's balance sheet. That means taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour. In exchange for that protection, Citigroup will give the Government warrants to buy shares in the company. In addition, the Treasury Department also will inject $US20 billion of fresh capital into Citigroup. That comes on top of the $US25 billion infusion that Citigroup recently received as part of the the broader US banking-industry bailout. The Government and Citigroup had hoped to unveil the plan early Sunday evening, but negotiations dragged on longer than expected. Treasury Secretary Henry Paulson began briefing Congressional leaders about the plan later in the evening. The sweeping rescue plan underscores how concerned the Government had become about letting Citigroup's fortunes continue to deteriorate. The company has been pounded by mortgage-related losses and is on track to suffer further from the weakening economies in the US and around the world. Last week, with Wall Street rapidly losing confidence in the company, its shares tumbled 60 per cent to a 16-year-low. Still, Citigroup chief executive Vikram Pandit and other top executives insisted last week that the company remained on solid financial footing. While Citigroup's recent woes do not appear to be as severe as the problems that ultimately felled Bear Stearns and Lehman Brothers, the US Government seems to have decided it can not afford to gamble on whether Citigroup will weather the storm. At the same time, the Treasury Department is facing a political backlash over the use of taxpayer funds to stabilise the banking sector, and has nearly exhausted the $US350 billion that Congress allotted to the first phase of the industry rescue. The planned arrangement with Citigroup appears to be an attempt to thread that needle by giving the company some breathing room until markets calm. In addition to the $US2 trillion in assets Citigroup has on its balance sheet, it has another $US1.23 trillion in entities that are not reflected there. Some of those assets are tied to mortgages, and could cause heavy losses if brought back on the company's books. The assets affected under the government plan are largely loans and securities backed by residential and commercial real estate. Such assets have been devastated by the meltdown of the housing markets and have started coming under even greater strain in recent weeks as the US economy slows. "With these transactions, the US Government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the Treasury Department, Fed and FDIC said in a joint statement issued yesterday. Even as they assured employees and investors last week that the company was on sound financial footing, Citigroup executives and directors knew they needed to do something fast. By Friday, bank officials were hoping for a public expression of confidence from the Government, believing that would help reassure clients and customers. Top government officials, including the heads of the Treasury Department and the Fed, also started scrambling to draw up contingency plans in case Citigroup's troubles intensified. Despite the unprecedented scope of the rescue plan, it is not clear whether it will be enough to stabilise Citigroup. The roughly $US300 billion pool of assets that are included in the rescue plan represent only a sliver of the company's more than $US3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such "hidden" assets helped trigger the nosedive in Citigroup's stock last week. Among the off-balance-sheet assets are $US667 billion in mortgage-related securities. Citigroup has tried to rid itself of its exposure to those assets -- and nearly hammered out a similar arrangement with the Government two months ago. In late September, the company reached an agreement for a government-financed acquisition of Wachovia. Under that planned deal, Citigroup and the Government were going to divvy up the losses on $US312 billion of assets, with Citigroup absorbing the first $US30 billion in losses and the Government shouldering the remainder. Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets. That deal unravelled in less than a week, after Wells Fargo emerged with a higher bid that did not require direct government backing. That deprived Citigroup not only of a way to dump its risky assets but also of a deep pool of deposits, which would have substantially strengthened its access to stable low-cost funding.