Word: tarp
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...guys are trying to do, and how. I know this is much easier said than done, given the startling rapidity with which things have headed down the drain. But the bailout of Citibank about a week ago makes the point; at the start of this, the so-called TARP (the Troubled Asset Relief Program) was going to be used to buy bad assets from financial institutions. Those institutions could then be recapitalized and, with their balance sheets repaired, set about lending again to qualified individuals and businesses, providing the economy with the seed corn it needs to grow. Then...
...billion in preferred Citi stock and the right to buy more shares at $10.61 - not a bargain these days, with Citi trading in the single digits, but perhaps worth more down the road. On top of that, $20 billion from the Treasury's Troubled Asset Relief Program (TARP) will be injected into the company in exchange for preferred shares that come with an 8% dividend...
...After the mess that followed Lehman Brothers, regulators have no interest in seeing another big financial player go belly up. And now the government has a vested interested in not letting that happen. In October the government, as part of the TARP program, invested $25 billion in Citigroup. Treasury Secretary Henry Paulson has said he will do everything to protect that and other taxpayer investments. Paulson agreed to invest more money in AIG to keep that insurance company alive. So there is reason to believe he would do it again with Citi...
...Another option could put more money into the firm from the TARP program. The problem with that plan is Citigroup may need more money than the Treasury could inject into the firm. Paulson only has $60 billion left of the initial $350 in TARP funds that he can spent without having to face a review from Congress. More importantly, the government does not want to end up owning Citigroup. Then taxpayers would be on the hook for all of the bank's debt. So the most the government could invest in Citigroup would be $20 billion, which is the amount...
...main argument within the Administration against using TARP money for an auto-industry loan is that the automakers' problems are viewed as systemic, not short-term. "No one in this building or in this Administration has a plan for the long-term viability of the auto industry," says the senior Treasury official. "It's just not on the shelf." Without such a plan, the Administration has decided that any short-term loan should come from existing money from Congress for the auto industry's modernization...