November 24, 2008 3:27 PM

Sweet Deal for Citibank?

After Citicorp lost roughly half of its remaining stock market value late last week, the Treasury has thrown a very large life preserver to the bank - and outside of the $700 billion Troubled Assets Relief Plan. The plan has several components, but the key is that taxpayers have now partially guaranteed over $300 billion of troubled securities. The bank will take the first $29 billion in future losses, and has handed off 90% of additional losses for a fee of $7 billion. In addition, dividends will be strictly limited, some restrictions placed on executive pay and the bank will provide warrants which will have value only if the bank's stock rises substantially. I suspect that General Motors and Chrysler would jump at any first cousin of this deal.

I believe that the financial system must be stabilized. With the market ready to pounce on Citibank this morning, I strongly suspect that a much better deal could have been had.

It is remarkable, however, just how resistant the Bush Administration is to providing additional stimulus to the real economy or direct efforts to stabilize the housing market by helping homeowners in foreclosure. We are paying dearly for the last several months of Mr. Bush's tenure.