Citigroup Gets a Bailout

$20 billion to bail out the company.

Under the deal, the government will have the right to slash the huge pay packages and bonuses that Citi's executives had long enjoyed, and cap stockholder dividends at only 1 cent per share.

The sweeping plan is designed to stem a crisis of confidence in the once-mighty financial institution, whose stock lost 60 percent of its value last week on worries about its fiscal health.

"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 three agencies said in a statement.

"We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery, and to manage risks."

The $20 billion cash injection comes in the form of a purchase of Citigroup preferred stock by the Treasury Department.

The funds to buy the shares will come out of the $700 billion financial rescue package already in place.

The new capital infusion follows an earlier one - of $25 billion - in which the government also received an ownership stake in Citigroup.

Let's not forget that the feds thought that Citigroup was in a better position to buy Wachovia than rival Wells Fargo. Now, they're busy bailing out Citigroup.

I understand that there are good reasons that bailouts are necessary to maintain the stability of the banking system since it represents the foundation of the economy with providing credit to all other sectors for r&d, growth, business operations, etc.

If banks go under, especially those that are large, it makes it more difficult for businesses to operate and a credit squeeze will send smaller companies and those that have already tight credit over the brink into bankruptcy.

The automakers are a case where bad business decisions have saddled the domestics with huge losses and bailing them out will not address the underlying problems.

The problem is that the banks made bad business decisions that should not be rewarded with bailouts either. This mess is due largely to subprime borrowing and the repackaging of paper that hid the true risk of that paper. They have no one to blame but themselves, and Congress, for this mess.