Monday, August 31, 2009

Reverse Bank Robbery

No wonder America's banks are making profits again: the US government is bribing them to borrow its own money

by Dean Baker

Most of us work for a living, the rest are bankers. These days the news is filled with great tales [1] about how America's banks are coming back.

Even that giant corpse Citigroup [2] is showing signs of life. Its stock is now selling for more than five times the lows it hit earlier this year. Its market capitalization is up near $57bn, a bit more than the $45 billion that the government lent them through the Troubled Assets Relief Programme [3], or Tarp. Some are even expecting that the government will make a profit on its Citigroup [4] investment.

These hopes are probably somewhat premature. Citigroup still has many bad assets on its books which it has not yet written down. Furthermore, the government is directly on the hook for $300bn of these bad assets, having offered a guarantee as part of its "December Citigroup Rescue Special".

No comments: