I used to have a bumper sticker on my truck that read, "If you are not outraged, you are not paying attention." This sentiment was specifically aimed at policies implemented during the Bush administration. After the November 2008 presidential election I tore the damn thing off...I'm now looking for a replacement. The Obama administration's unabashed participation in Citigroup's rape of the American taxpayer strongly suggests Washington has no intention of protecting Main Street from the institutionalized greed on Wall Street. We should be outraged...and demand the President start exercising his promise of "change"...right now.
My crushing disappointment with the White House can be directly linked to a Washington Post front-page story published on 16 December. In an article titled "Tax Deal is Worth Billions to Citigroup," the Post reports the Internal Revenue Service cut a special break for Citigroup and "a few other companies partially owned by the government" (that would be you and me, the average American taxpayer). It seems the IRS was directed to issue an exemption to existing tax rules that will allow Citigroup to avoid billions of dollars in normal federal liabilities. Here's the really disconcerting twist to this story--accounting experts believe the lost tax revenue may actually be greater the profit Washington would earn from selling our stake in Citigroup.
Under the existing tax code, Citigroup is allowed to reduce its taxable income in a profitable year by the amount of losses incurred during unprofitable years. The catch, this benefit can not be transferred to a new owner. Why? The IRS wanted to prevent money-making ventures from purchasing unprofitable companies as a tax shelter. The catch in this case, the tax code authors likely never envisioned a situation where the government was selling a controlling share of a corporation back to private stakeholders.
This development leads to a messy situation if you are Citigroup executives intent on escaping the compensation czar. Washington's sale of our 34% stake in Citigroup means the firm is now under "new" management and thus would not be allowed to write off an estimated $38 billion in losses incurred over the last two years. In other words, the standing tax code--before it was so kindly altered by the Obama administration--would have caused the boys and girls who ran Citigroup into the ground to actually suffer some of the consequences associated with their poor management. Under the revised code, the leadership team at Citigroup now will be rewarded for their buffoonery. Unbelievable.
But, wait, the story gets better. Obviously bruised by the Post's report, officials at the Treasury Department told National Public Radio "that taxpayers will benefit from this ruling because Citi's shares will be much more valuable." NPR goes on to declare, "Tax analyst sources agree with the Treasury. They say if this tax break wasn't allowed, Citi's shares would plummet because as you know, Wall Street is all about future earnings." Pardon my French, but this is utter bullshit.
Do you know what Citigroup shares are presently worth? $3.20. That's right, $3.20. And they are not going to get more valuable any time in the foreseeable future because Citigroup executives just issued another $17 billion in common stock and $3.56 billion in "tangible equity units" as a means of funding their hasty escape from the restrictions imposed under TARP. These same shares were worth $3.95 a day prior to Citigroup's flight from TARP. In other words, Wall Street investors were not impressed with the move--and don't see Citi becoming immensely profitable next week, in a month or a year from now.
You know what this means for us, the taxpayers who still own 7.7 billion Citigroup shares? Our potential profit associated with bailing out the Citigroup leadership is diminishing with every passing day. On 11 December 2009 we could have turned a profit of $6 billion by selling all these Citi shares. Now we might net $5.5 billion...by the end of January 2010 that will likely be down to $5 billion. By June 2010? Well, my abiding suspicion is that Citi might not last that long--but the executive team will have collected their bonuses and secured golden parachutes prior to fleeing their failure. The bottom line, we are being robbed, and the White House is abetting the theft.
Oh, I'm not the only one who thinks Citigroup and the White House are selling shareholders down the river. On 15 December 2009 Abu Dhabi's sovereign wealth fund filed an arbitration claim charging Citigroup executives with "fraudulent misrepresentations." In November 2007, the Abu Dhabi Investment Authority (ADIA) provided an ailing Citigroup $7.5 billion in exchange for equity units that pay an estimated 11% annual dividend. Under the deal these equity units were to be converted into common shares that ADIA would begin purchasing at $31.83 a piece in March 2010. ADIA clearly does not think Citigroup shares are going to be worth anything near that price in March...or anytime thereafter, and has now told a court Citigroup's leadership is guilty of lying about the firm's viability.
At this point I should mention ADIA is investing with Abu Dhabi taxpayer funds and thus is seeking to protect its citizenry's cash. (When ADIA originally sat down with Citi the firm's shares were worth approximately $34...this was not a risky investment...it only became a disaster because the Citi leadership had obviously taken absurd risks and Wall Street was no longer willing to support their malarkey--thus the current share price of $3.20.) ADIA is doing more to protect its constituents than Washington was willing to do for you and I. Citigroup's response to this filing: the leadership team will "vigorously" fight for their "legal rights." Right. With any luck the ADIA lawyers and a judge in New York will have more foresight and courage than the folks at Treasury and the IRS. Citigroup's executives have been misrepresenting the value of their firm for years and should now be held accountable for deluding anyone who invested in this house of cards.
President Obama, sir, I am paying attention and I am outraged--as should be every other taxpaying American. Rescind this tax break and leave Citigroup to the wolves. Washington needs to stop coddling the financial industry leadership. As we seem unwilling to prosecute the Wall Street executives who almost single-handedly caused the current recession, perhaps collapse of their empires will serve as a suitable punishment. I'm nominating Citigroup as the first object lesson.