Friday, April 2, 2010

How we made out on CitiCorp bailout

Dean Baker, Co-Director of the Center for Economic and Policy Research, has an interesting piece in today's HuffPo on whether the taxpayers made any money on the various parts of the bailout of the nearly moribund CitiCorp -- you know, one of the banks that charges upward of 30% on your credit card debt, yet borrows money from the Fed at next to nothing. They also take this money they borrow almost free from the Fed (us) and make a profit by lending it back to us in the form of Treasury Bonds; i.e., they borrow from the Feds at very favorable rates (next to nothing) and sell the money back to the Feds -- risk free -- at higher rates of return than they paid -- close to 3.7 %. As Baker says, "Nice work if you can get it."

Baker's reasoning is not so much that we didn't recoup the principle on the loans, or that we (the taxpayers) didn't get some interest payments. Rather, he compares what the government (us) would have made by placing this money elsewhere, or demanding a more realistic payback from CitiCorp that reflects the actual worth of the money and guaranties that were given to Citi.

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