Citigroup bailout sheds light on just what the taxpayers are buying

Citigroup bailout sheds light on just what the taxpayers are buying
Posted Nov 29th 2008 1:40PM by Bruce Watson
Filed under: Citigroup Inc. (C), Bank of America (BAC), Amer Intl Group (AIG), Financial Crisis

We are unfortunately not privy to the backroom deals and promises that are passing between Treasury Secretary Henry Paulson and the honchos who are benefiting from the government's massive bailout. However, two things are becoming increasingly clear: first, the financial industry has not gotten the memo about changing their business practices, and, second, the $700 billion in tax money that is keeping these companies afloat is not finding its way down to the average citizen. The big bailout was originally sold as a desperate maneuver to keep Wall Street afloat. Paulson has indicated that these funds would enable lending companies to service their toxic debt and, in turn, continue lending. In this way, America would be able to count on the credit that kept it running; businesses would be able to meet their payrolls, people would be able to buy houses, and the world would continue to turn.

Instead, some banks seem to be going on a buying spree, snatching up smaller, less successful institutions while prices are low and the getting is good. Citigroup (NYSE: C), for example, used the Wall Street fire sale to make a bid for Wachovia and pick up Forum Financial, shortly before asking for a second huge bailout. Similarly, Bank of America (NYSE: BAC) has decided to take over Merrill Lynch. A clever MBA could, undoubtedly, filter these purchases through a secret capitalism decoder ring and come up with a logical reason for them, but one wonders how gobbling up companies (and their toxic debt) is likely to help Bank of America and Citigroup to stay afloat, much less enable them to extend money to consumers. It is becoming clearer and clearer that the huge influx of taxpayer money is less about saving consumers than it is about enabling big companies to get even bigger.

At the same time that they are cannibalistically gorging themselves on each other, major financial institutions seem to be in a desperate contest to see who can waste the most money. Currently, the leader is AIG (NYSE: AIG), whose corporate retreat expenditures make Caligula look like a Puritan. While the company's president has gone out of his way to present these events as education seminars, he has largely failed to explain why they needed to take place at pricey spas, rather than an airport Marriott. Admittedly, when we're talking about debts that run into the trillions of dollars, quibbling over a measly couple of hundred thousand for a sybaritic holiday might seem a trifle cheap. However, as taxpayers struggle to buy foodstuffs and Christmas presents, these sorts of minor expenditures cast large shadows.

Even AIG's idiocy, however, pales in comparison to Citigroup's dogged determination to thumb its nose at taxpayers. As it begs for yet another bailout, the financial giant continues its plans to pay $400 million to put its name on the New York Mets' new stadium. The irony of this is priceless: Citi is using tons of taxpayer money to stay afloat, yet apparently expects that these taxpayers will be impressed by its name on the stadium used by New York's lesser-known team. In all likelihood, however, the name will stand as a permanent reminder of a company whose business model is mired in an earlier century.

Ultimately, the problem is one of perspective. For millions of Americans, a traditional time of spending and splurging has become a period of scrimping and saving. As they learn that the bailout may ultimately cost tens of thousands of dollars for every man, woman, and child, Wall Street's profligate spending cuts particularly deep. Whether this will be forgotten in a few months or will form the basis for a generation of distrust remains to be seen, but there is no doubt that the financial sector is desperately out of touch with its potential customers.

Tags: AIG, BAC, bailout, Bank of America, Citigroup, featured, Merrill Lynch, Mets stadium, Paulson, Wachovia