Krugman: Citigroup Bailout Necessary, But Structured Outrageously

One economist who's not pleased with the way the bailout of Citigroup is structured is Nobel Prize winner, and Princeton economics professor, Paul Krugman. Krugman acknowledged that the bailout was necessary, but wrote on his blog that the structure of this bailout is an 'outrage':

A bailout was necessary -- but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

Krugman also criticized the details of the Citi bailout on CBS' The Early Show:

"If Citigroup had not been bailed out, then the whole financial system could collapse," said Princeton economics professor Paul Krugman on CBS' The Early Show.

But is the government bailout of Citigroup well-structured, and are taxpayers getting a fair deal here?

Krugman, author of "The Return of Depression Economics and the Crisis of 2008" (Norton), says on first read, no.

"Most of the people who have looked at it, the small hours of this morning, have said this is a lot of taxpayer risk in return for not much," Krugman told co-anchor Maggie Rodriguez.

"It looks like a very sweet deal for Citigroup management, very sweet deal for Citigroup shareholders, to the extent they have anything left - not very good for the taxpayer. This was not good."

With other bailouts seemingly having done nothing to boost consumer confidence, Rodriguez asked, why do it if it is not well-structured?

"Well, you know, things could be worse, you know? That's been the moral of this crisis: things can always be worse,' Krugman said, "and they have been getting worse.

"Things could be much worse than they are. It's what hasn't happened, not what has, is the justification. We had to do this, but we should have done it better."

Wall Street cheered the news of Citigroup's bailout with stocks rising sharply.

Comments

[research]

Spend those trillions on energy, infrastructure, states, unemployed, facing foreclosure.

Order a trillion dollars in Wind turbines to install

200 GW !!!!!!!!!!!!!!! (600GW nameplate)

Don't ya think that would jump start the economy?

Cover appropriate roofs with a trillion dollars worth of Solar Cells:

Generate an Average of 125-500 GW !!!!!

Electricity sells for roughly 1$ per Watt per year.

100 to 500B$ per year.

10 or as little as 2 years. Only Maintenance cost, from then on for 20-40 years.

ROI of 100% to 500% over 20 years

[TrueSense]

For all you that thought my prior post was of base, here is what concerns me. I know BO is not in charge yet:

1. Does not express any concern of over any financial bailouts.
2. His & Clinton's boy, Robert Rubin, & to some extent, Larry Summers, lead the way in repealing the laws that would have prevented much of this. Yet, these are BO's advisors.
3. Like Touzan, Rubin left he gov after getting that slock passed & cashed in for over $ 100 mill. Summers and Rubin are Repub lite types and profits of doom.
4. BO bust the balls of car makers over 25 bill but says nothing about the heist of our country to the people responsible for the mess. We could have set up a new enconmy with the trillion dollars we blindly gave away or bought the institutions.

[TruelyFedUp]

I worked in the debt negotiation industry for a few years and daily heard the heart-rending stories of people who had used credit cards but then fell on hard times.

Folks had to stop paying on the debt to get the card companies to agree to settlements. Most were terrified of ruining their credit ratings and did not realize that they had no credit, could not borrow another dime and would spend the next 30 years paying back creditors 5x what their purchases cost to satisfy the penalties imposed. Repeatedly clients told me that they were being harrassed with constant calls from hostile creditors who told them that they were bad, that the fact they were hospitalized with terminal cancer, had lost a job or an arm was not the bank's problem and they were angrily ordered to pay their bills.

Another aspect of the banks collection policies was to raise the interest rates of ALL of an individual's cards up to as much as 35% if they went late on only ONE credit card. On top of this the late fees and over the limit fees rapidly raised the balances till the debt was tripled while the high interest rates were being charged on all cards. On top of the stress of the hardship situation they were now suffering the credit card collectors poured on the hate calls and penalties till in desperation some divorced or became sicker, a few committed suicide. Bail out Citibank? NO Way!

[lew3063]

I recently received a letter from CITIBANK. I have a credit card with CITIBANK. They said: “We are increasing your variable interest rate APR for purchases. Your purchase APR will equal the U.S. Prime Rate plus 13.99%, with a minimum APR of 19.99%. As of October 1, 2008, this purchase APR is 19.99%.”
The default APR equals the greater of (1) the Prime Rate plus up to 23.99% or (2) up to 29.99%.
I have perfect credit. This raise of interest rate is not going to impact me directly because I’m not using the CITIBANK card for new purchases anyway; and, I have not had a default experience and, hopefully, won’t.
HOWEVER, at a time when Americans are trying to deal with an economic collapse of 1930’s magnitude –a good deal of which can be attributed to the greed and bad management of big business, especially in the financial sector, is this what Americans need to “jumpstart the economy”?
How do the financial institutions justify taking taxpayer money to be able to create credit for Main Street businesses and consumers/­taxpayers, then charge the taxpayer, whose money they took, outrageous interest rates to use the credit created by the very taxpayer dollars they took in a “bailout”?
What is wrong with this picture? Can you do anything about this?
See my blog http://lewsviewsandnews.blogspot.com
Best regards,
Lew Hagood
Email: lewpaints@­bellsouth.­net

[VirginiaJeff]

Re: posts claiming a nefarious connection between Krugman and Enron --

Krugman's (very part-time) job as a consultant was to brief Enron executives on economic and political issues. He was not a board member, nor was he an auditor, so it wouldn't make sense for him to have known what those corporate jerks were up to. If you evidence to the contrary, by all means post it here.

[ThePeacemakers]

It's worse than what he mentioned. Citibank is majority owned by Saudi Royalty.
Tell me when you're tired of being held hostage to the "war on terror".

[EuroGold]

Kick Benrnake, Paulson, Bush and Cheney out of office before they screw up the US anymore.

[mcantwell]

Seriously? Krugman was associated with Enron?

[khargushoghli]

This bit of Right Wing bull has been answered by Slate about six years ago.
http://www.slate.com/id/2061092/

[spinns17]

more k y please.lol

[deepfreezevideo]

So it appears we must appease HRH Prince Alwaleed bin Talal
http://newsbusters.org/static/2008/11/2008-11-24CNBCAlwaleed.wmv

Otherwise things could become very painful for American infidels.

[Pearlman]

Here is where some of that bailout money went this year:

"Citigroup paid Bill Clinton $700,000; Goldman Sachs paid $950,000; Lehman Brothers paid $300,000 and Merrill Lynch paid $175,000 to the former president for speeches during that time period. Sen. Clinton’s 2008 financial disclosure reports are not yet available."

[khargushoghli]

That's why I'm just jumping for joy that Obama is larding his cabinet with Clintonistas.

[PKSSK]

Hmmm, Clinton attended a large banking conference in Kuwait recently and was paid a hefty sum for his time and speech!!!

"Change we can believe in"???????­??????????­??????????­???? Has Obama already sold out to the corp elite capitalist who are intent on taking down our country and, at the same time, much of the world???

[RWG]

How can it ever be possible to build consumer confidence when the only relief being offered is to perpetuate and reward corporate greed and failure? Bailout consumers and they will decide who will survive by supporting those companies they deem worthy. We are relying on a Congress controlled by special interests to decide? I wonder who will benefit . . .

[TXfemmom]

Did anyone trust Bush and Co., the most inept and corrupt administration in the history of this nation, to structure this bailout of Citi, or any others, in such a manner as to make the offenders be punished and thrown out, .and the citizen taxpayers to be protected? I didn't. I am certain that Obama shall enter office to discover that the money is gone, the need shall still exist, and we won't have the money to untangle the mess that Bush created. We keep hearing that Obama will not investigate and bring charges against this administration, and that shall make him part of the problem.

Being magnanimous is okay in certain circumstances, but permitting the largest thefts and violations in the history of our country to go unpunished is stupid and will only lead to another criminal adminstration in the future

[cbates]

For me, unless the economist comes out first with their solution(s) then they are Monday morning quarterbacking. Kruggman just won a International award for economics and he is not engaged in this recovery other than to make comments on past events. What is wrong with this picture?

[SailFree]

So the bailout was structured outrageously? Like Enron? Who worked for Enron?

[vedder110]

Haha buuurn. Krugman fanatics like to ignore the fact that he was completely clueless that any type of corporate malfeasance was taking place at Enron while he served as their advisor.

[khargushoghli]

This bit of Right Wing bull goes back about six years. It was handily answered in Slate:
http://www.slate.com/id/2061092/

[confuseddemocrat]

I got excoriated yesterday for posting that this was a lousy deal with no accountability.... and that the media along with the politicians were partial to the bank bailouts but hostile to the conundrum which faces the auto industry.

This morning even the talking heads admitted that there is bias within the media regarding automakers and that the media is less critical of the banking bailouts because they have friends, and spouses who work in the financial industry (MSNBC)

I cannot believe that the government will give a single company, Citibank, billions and then assume all its risk for its bad decisions up to 300 billion dollars; but then refuse to rescue the entire automaker industry, unless the American workers in those companies capitulate and agree to work under conditions found only in "non-unionized " third world or less evolved developing nations

How can we give 1+ trillion dollars and counting to the banks without any strings, oversight or plans to significantly change the banking practices that led us to this mess, but yet demand that the automakers and their unions make drastic changes within a 3-week period to get 25 billion dollars?

[Pearlman]

Toyota is non union. The average pay for their American line worker is $100,000/year. That doesn't sound too "third world" to me.

[deepfreezevideo]

Can you please provide links to document these salaries because I do not
see them anywhere on Google, very sorry.
I just want to know where you got that figure, because it's not in line with
pay scales at Huntsville, Alabama Georgetown, Kentucky Princeton, Indiana San Antonio, Texas or Buffalo, West Virginia.

[ReasonIsMyReligion]

Thank. You.

[Routemaster]

Yappnmutt
"paul is chief wanker"

The 'w' in the word banker is usually silent.