$700 Billion Was Only The Beginning
The shirt Geithner should wear for his first day on the job.
Even before word came on Tuesday that Citigroup might split into pieces to shore up its finances, an unpleasant message was moving through Congress and President-elect Barack Obama’s transition team: the banks need more taxpayer money.In all likelihood, a lot more money. . . .
On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.
The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts. . . .
Industry analysts estimate rising unemployment and business failures will lead to another $500 billion to $750 billion of losses in coming months. That could bring total losses from the credit crisis to $1.5 trillion to $1.8 trillion, twice as high as earlier estimates.
Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.
Most egregious of these is Bank of America, who already absored Merrill Lynch and received $25 billion from the Treasury via the TARP and then acquired Merrill Lynch. BoA is now "seeking billions more to shore up its balance sheet as it struggles with mounting losses at Merrill Lynch." As a reddit poster notes, this is equivalent to the South Park Underpants Gnomes' [brilliant] synopsis of the moronic dotcom business model:
- Step 1: Bank of America needs and gets bailout money.
- Step 2: Flush with cash, BOA buys Merrill Lynch.
- Step 3: ? ? ?
- Step 4: Bank of America needs more bailout money.
The government’s willingness to feed Bank of America a new tranche of taxpayer money comes on the heels of greater federal intervention in Citigroup. After pumping more than $45 billion in Treasury money onto its balance sheet, the government has put pressure on Citigroup to dismantle its troubled empire in an effort to stop losses and curb capital injections. . . .
[Still,] “Citi is being unwound because it’s too big and the government wants it smaller,” said Paul Miller, an analyst with Friedman Billings Ramsey. “I think Bank of America, either a year or two out, is going to be dismantled also because its returns are going to be too weak. No management has the expertise or brain power to provide the right required return for investors with institutions that are this size.”
Brace yourselves -- this recession (depression?) is just getting warmed up.