After first trying in vain to become toxic-asset managers and, next, non-voting equity investors in shaky banks, the peripatetic trio composed of the Federal Reserve chairman, Ben S. Bernanke; the chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair; and the Treasury secretary Henry M. Paulson Jr. decided last weekend to reinvent itself as an insurance company -- hereafter the BBP Trio Insurance Inc.
Here are the terms of the Citigroup insurance plan: the bank has on its balance sheet about $2 trillion in assets of which $306 billion, mainly related to real estate, are of uncertain value. In the event that those assets turn out to be worth less than $306 billion, American taxpayers will cover -- that is, reimburse -- Citigroup for some losses. But before taxpayers start reimbursing Citigroup for anything, up to $29 billion in losses will be absorbed by Citigroup. (This is the deductible.) After the $29 billion is reached, taxpayers will absorb 90 percent of any additional losses, and Citigroup will absorb 10 percent (this being the co-insurance).
As in a health insurance policy, there is a maximum amount of potential losses that the taxpayer will bear, but that level has not been determined. According to the "Summary of Terms" published by the United States Treasury, that maximum exposure will be "based on a valuation [of the $306 billion book value of assets] to be agreed on between institution [i.e., Citigroup] and USG [the United States government]."
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