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

[dontstepback]

Is anyone asking the CEOs and management of citicorp to resign to get a bailout? The chief trading strategist named Mahera lied to the board of directors and told them that he was making good trades in the realestate market when in fact the house of cards was coming down. How can one man be in charge of billions if not trillions of trades for a multitrillion dollar corporation?

[CindyinEncinitas]

Arrest Paulson for stealing our money and giving it to his friends and get our money back. And then give it to Sheila Bair. How many times do I have to say this, people????

[IgIzBliss]

uh, one more time?

[confuseddemocrat]

Unfortunately the way things are going we won't even have enough money to pay the jailors nor to maintain the jails

[amaycatbaker]

So, it is needed to help a Saudi Prince keep his controlling interest in citi corp. Why don't the Saudi's pay for the bail out? Didn't they just get 4.00 a gallon gas this year?

[jsgaetano]

As usual, Bush is helping transfer America's wealth into Saudi Arabia's pockets. And getting a nice kickback, of course.

GWB is, without any doubt, the Arabian Candidate.

[LynnW49]

Spell check!

These bailouts are looking more and more like taxation without representation. Why don't we withhold our income taxes until they are properly structured?

[IgIzBliss]

I'm down for a tax rebellion too. Only now Obama needs everyone who can pay into the system doing so, or we'll never dig ourselves out of this hole.

[LynnW49]

These bailouts are lookingmore and more like taxation without reoresentation. Why don't we withhold our income taxes until they are properly structured?

[maggiee]

This is typical. Banks get money immediately, no question. The auto industry, which is responsible for millions of jobs, not so much.

[Pearlman]

Banks are different. Without banks there are no capital markets and no place for the government to sell its own securities. The Government has to have functioning capital markets to raise its own capital. IOW, they are financiers for our Government.

[ReasonIsMyReligion]

Clearly you know your stuff, but sorry -- it's still "No Banker Left Behind" while the working stiff gets LEFT OUT.

[TheFriendlyAtheist]

What nonsense. There is no need at all for private banks. Do you really think that we're putting trillions of dollars into these failing institutions just so they can sell gov. securities. Any Mom and Pop store in the country could open a window to sell securities. We would be better off if we just nationalized them all.

[Pearlman]

Considering past Prize Winners were the architects for our current financial system, another couldn't hurt, hey.

(note: there is no Nobel Prize in Economics - it is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel and not recognized as a Nobel Prize)

[paixa3]

Mr. Krugman should be IN CHARGE of the economy in the new administration. The others' appointed are wankers extraordinaire.

[yappnmutt]

paul is chief wanker

[Repub4Obama]

Please post photos of all of *your* international awards.

[TrueSense]

All this financial bailout stuff represents trickle down ideals. I thought BO was not down with that !

Blue collar brothers, look a the Dems sell you out again. They do not even stick up for you, They ridicule you along with the Repubs that just want to break you and working people while giving all kinds of money to the crooks that started this collapse and are part of a fake economy.

Now the and the Dems want plans for Detroit and it's blue collar workers but ask nothing of bankers while spending 50 times what Detroit asks for. While Detroit managment should use more diesel, electric/hybrids, and have more flexible factories, they do represent the real economy.

Blue collar brothers, look a the Dems sell you out again. They do not even stick up for you. They ridicule you along with the Repubs tha just want to break you while giving alll kinds of money to the crooks that started this and are part of a fake economy.

[paixa3]

You are correct. This bailout business is a legal HEIST of the last funds in the USA.

Shame.

[Barbie40]

The auto industry need to have a fair contracts for the UAW & it's retirees before getting ANY of that 25 billion.

The CEO's of the Auto industry need to show their pay cuts, protection for it's union members, guaranteeing the protection of pensions before they get a dime.

Just giving them money without these protections for our Union brothers is STUPID.

That is not a sell out--IT'S PROTECTION.

Barack is smarter than you. Why do you think the congress is delaying a vote until after Bush gets out of office--cuz Bush will not protect the UNION.

[Repub4Obama]

First, you pasted in your paragraph twice. Second, did you realize that BO is not President yet, and therefore, not in charge of the Treasury?

Please wake up and get a "true sense" of what month it is. Perhaps your post would have teeth if this was February 2009 and the same thing happened.

But for now, it's just another failure of the Republican trickle-down mess. I bet you voted for McCain, huh?

[IgIzBliss]

newsflash: Obama is NOT the one who just bailed out Citi, NOR is he the one who "refuses" to bailout the autos. That's ALL Bush--if you hadn't noticed, the Inaug isn't until Jan. 20th.

Conservatives always get me with this: they empowered Bush to reach for larger and larger slices of the pie (Patriot Act, wiretapping, EVERY budget supported with the war financed on the DL on the side, torture, Katrina)--conservatives HAVE to OWN this. They made King George, and now he's presiding of the largest transfer of wealth in American history since slavery. That's not because conservatives have abandoned their principles--it's because they empowered the president, without ANY internal opposition, to pie grab. And he's done that swimmingly--to the tune of the economy is drowning, fa la la la la, la laaaa, laaaa, laaaaaaaa!.

The irony is that there were only two forces dividing the electorate in American political culture: race and class. And Bush's rash approach to governance basically shattered the first shackle--now we got people voting in an African American for president--something hardcore blueblood elites NEVER thought would happen. And Bush is quickly dissolving the other wedge issue: class. Everybody can see this wealth being transferred, and the few smart conservatives who oppose this do so not because of principles, but because they know this is the ONLY tool left they have to continue dividing us.

[mudbones]

ummmm, It's not Jan 20th yet so Obama is not in control......... the idots that got us into this mess are now trying to fix it....... scary huh?

[westcoastsc]

Why isn't Krugman on Obama's team?

[yappnmutt]

while i agree with paul that putting the american taxpayer on the hook for a bankrupt company is bad. paul is wacked in general as an economist. obambam apparently knows this.

[proudliberal4truth]

He apparently turned down the Sec of Treasury job but has agreed to serve as a senior economic advisor to PEBO. I was pulling for him for Treasury myself.

[who38]

Good question?

[IgIzBliss]

Some folks are better standing on the outside than working from within. Standing outside, he can level powerful critiques AND support for Obama's policies. Once he goes through that White House door, he loses that. And we might need his sane voice functioning with impunity and without conflicts of interest.

[jdh45]

The Great Conservative Bailout. Personal responsibility? Not if you are rich.
Conservatisim at it's finest. Rush and Hannity should be proud.

[TrueSense]

WTH is Barack doing ? What's new here ? Is he confused ? I thought he new better. I guess he told he truth when he said he like he banker types in his book.
Bob Rubin and Larry Summers, along with Gramm, with Clinton's assistance started the repeal of depression error laws intended to prevent this crap! Then they deregulated derivatives. He is appointing deregulating, trickle down, Republican lite types. This is all very conventional. We could have turned this around from the consumer and government side without all this money. We could have nationalized some of these institutions.

Now Bob Rubin had over $ 100 million and is advising Obama in a mess he created via law and some what more directly via Citi after making lots of money through taking bad risks. After playing Clinton, now he has his man Obama playing along again to bail him out with US money. We could have reinvented the entire economy with the 100 of billions being spent and temporarily bought many of the companies.

Why are we busting Detroit for wanting 25 billion and applying no scrutnity to these financial dea ? That is the real economy, not these shell game/ three card monte players. They are worse than we know because the private Fed is printing, spending money, and committing US to stuff.

[Repub4Obama]

BHO is not in charge yet. Please wake up.

[Pdubya]

baaa baaa baaaa

[IgIzBliss]

Just because someone served in a past administration, or even advocated a policy in the past DOES NOT MEAN that they will not be subject to NEW requirements and expectations by the NEW PRESIDENT.

Just because your opponent uses a knight in chess in one way DOES NOT MEAN THAT ALL OTHER OPPONENTS ONE PLAYS MUST ALSO USE THAT CHESS PIECE IN THE SAME WAY. Jesus! That's just gaming 101.

Would y.o.u prefer that A) he chooses some decrepit old analyst from the Carter Administration, or someone who must Learn as They Go? Which is it?

That's a flawed argument.

[Barbie40]

When Barack gets in office can he recall the bailout money and redo it? Seriously, is that possible?

[westcoastsc]

I believe that is possible.

[IgIzBliss]

TOTALLY POSSIBLE. If they haven't squirreled it all way in the Grand Caymans, that is. . . .

[mjtaylor22]

These insitiutions are still foreclosing on people, not re negotiating with homeowners and not making any arraingements, so every month their projected incoem falls due to the defaults they are allowing to happen. SO MONTHLY DUE TO THEIR OWN ACTIONS OR LACK THERE OF, THOUSANDS MORE HOMES ARE FORECLOSED ON, AND THEY THROW THEM INTHE BAD DEBT PILE, THEN COME ASK THE TAXPAYERS FOR A HANDOUT TO SAVE THEIR BONUSES.
THANKS ALOT

[pleasethinkwomen]

We need THIS GUY on the new economic team!