Treasury Authorizes Sale of More Citigroup Stock

Earlier today it was reported that the federal government would begin a fourth round of sales of Citigroup stock. The move is part of the fed's ongoing effort to recoup costs from the financial bailouts.

ABC News reports:

The Treasury Department said Tuesday it had given Morgan Stanley, its agent for the sales, authorization to sell an additional 1.5 billion shares of Citigroup stock beginning immediately.

Citigroup received $45 billion in taxpayer support in one of the largest bank rescues by the government. The government also provided the bank with insurance against losses on a pool of $301 billion in assets.

Of the $45 billion in taxpayer support provided to Citigroup, $25 billion was converted to a government ownership stake that the Treasury has been selling off since last spring. The bank repaid the other $20 billion in December 2009.

The announcement of the new stock sales came a day after Citigroup announced that it had posted its third straight quarterly profit.

The bank, which is still 12 percent owned by the government, earned $2.15 billion, or 7 cents per share, in the three months ending in September.

Read more here

U.S. Gave Up Billions in Tax Money in Deal for Citigroup's Bailout Repayment

Taxpayers everywhere are fuming over the news that the recently bailed-out financial giant Citigroup is being granted permission to withhold billions of dollars in potential tax payments to the IRS. Usually when the government takes partial ownership of a company through a federal bail-out they are forced to give up many of the tax breaks they were used to receiving. However, in this case Citigroup is being allowed to take advantage of these breaks with the hope that it will outweigh the expected losses when the government begins selling their shares of the company to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.

"The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts."

Continue reading at Washington Post.com…

TARP Bailout Extended 10 Months

This morning, Treasury Secretary Timothy Geithner announced that he would be extending the Troubled Asset Relief Program – or TARP – by 10 months. Geithner went on to say that the new, scaled back program would be focused on getting loans to small businesses, stopping foreclosures, and stimulating loans from the credit market. The extended TARP is estimated to cost no over $500 billion.

"History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn," Geithner wrote in a letter to congressional leaders. "We must not waver in our resolve to ensure the stability of the financial system and to support the nascent recovery that the administration and the Congress have worked so hard to achieve."

Under the TARP law, the bailout program would have expired at the end of December if Geithner had not decided to extend it.

Geithner said that in the end he does not expect to spend more than $550 billion and that $175 billion will be repaid by the end of 2010.

His letter also includes a current accounting of TARP: The government expects to lose $42 billion of the $364 billion it disbursed in the 2009 fiscal year, which ended on Sept. 30.

While most observers had expected Geithner to extend the bailout, Republicans have been calling for it to be shut down and have filed legislation to end it.

Continue reading at CNN.com…

Bankruptcy for Chrysler Likely Averted as Banks Cave on Debt

It seems Chrysler may be able to avoid filing bankruptcy as was suspected earlier in the week, according to BusinessWeek.com. You can find a snippet of their post below, but the full story can be found here.

Chrysler LLC and the U.S. Treasury Dept. have reached an agreement with banks and private equity firms holding $6.9 billion of the automaker’s debt. Those firms have agreed to take $2 billion and a small equity stake in the company, paving the way, it seems, for Chrysler to avoid bankruptcy and with Italian automaker Fiat.

The deal, first reported by Washingtonpost.com, was confirmed by a Treasury official who said: “The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the President’s firm commitment that all stakeholders sacrifice to make this deal succeed.”

Details of the deal may come officially from Chrysler or Treasury officials later today.

Banks, including J.P Morgan, Citi, Morgan Stanley and Goldman Sachs, had been holding up the deal for weeks, insisting on more cash and equity. But a deal struck with the United Auto Workers Sunday night, said one executive familiar with the negotiations, put additional pressure on the debt holders to strike a deal.

Those banks are holding secured debt. And one of the issues confronting them is that Chrysler’s assets—Jeep, minivans, factories, Dodge Ram pickup and real estate—all have limited value in the recession, and few potential buyers [see Chrysler’s Looming Tag Sale].

The possibility of a Chapter 11 filing is not completely off the table for Chrysler. But it is far less likely.

Chrysler was to have filed a new restructuring plan to the White House auto industry task force by April 30, so that the Obama Administration could determine if Chrysler has restructured its business extensively enough to merit an additional $6 billion in loans on top of $4.5 billion it has already received.

A deal with Fiat is now expected to go forward, with the Italian automaker owning 35% of Chrysler, while the United Auto Workers will own up to 55%, and the Federal government up to 10%.

The Obama Administration has already said that Chrysler’s only viable future was one involving a merger with a stronger company. Its commitment to the further loans has been contingent on the Fiat deal. And the Fiat deal was contingent on big concessions from the union and bondholders.

The Pros and Cons of an Auto Industry Bailout

With the economy what it is and our country in the middle of a presidential transition, another huge bailout request is a lot for the average American to take in. It is hard to decipher fact from fiction at a time like this, let alone make an objectionable opinion from all the bias political statements being made. For this reason, I decided to do some research of my own and compile a list of the pro’s and con’s of an auto industry bailout.

Pro 1: Eco Cars

If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy. As Jeffrey D. Sachs of the Washington Post states, "Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan. This is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon".

Con 1: Taxpayer Cash

Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet. Mark J. Perry, an economics professor at the University of Michigan, questions, “should U.S. taxpayers really be providing billions of dollars to bailout companies that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?” However, many still concede to the bailout because they feel it is the only feasible option, and claim that the effects of a bankrupt auto industry would cost more to taxpayers then a bailout would.

Pro 2: Recession Woes

While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else “big” happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.

Con 2: Bankruptcy

One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, “the cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.”

Pro 3: Chrysler Bailout

As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70's while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late ‘79. However, to the surprise of the watching country, Chrysler came out with the "K-car" that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.

Con 3: Private Jet-setting

Unfortunately, when the CEO's of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO's took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayer’s money, then we need to know that they are being frugal with it.

House Votes Down Bail-Out Package

The House voted down a $700 billion plan aimed at bailing out Wall Street.

The rescue plan, a result of tense talks between the government and lawmakers, was rejected by 228 “nea” to 205 “yea” votes. About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Shares on Wall Street plunged within seconds of the announcement, after earlier falls on global markets.

President George W. Bush was "very disappointed" by the result. He would meet members of his team in the coming days to "determine next steps", spokesman Tony Fratto said.

The BBC's Adam Brookes, in Washington, said Democratic leaders in the House were likely to try and convince a number of their members who voted against the bill to change their minds in coming days.

Speaking after the vote, Republican leaders suggested the Democrats were to blame, accusing them of failing to mobilize their majority in the chamber.

Democratic presidential candidate Barack Obama spoke shortly after the vote, saying it was an outrage that ordinary people were being asked to clean up Wall Street's mess.