Geithner Burns Up More Of Your Cash

In the “Your Tax Dollars At Work” department:  Today Tim Geithner’s Treasury Department announced plans to convert $25 billion of your preferred-stock position in Citigroup (C) into common stock at a price of $3.25 per share.  Congratulations.  Your preferred stock earned a nice dividend.  Your new common stock earns nothing.  Furthermore, you could have bought those same shares on the open market for quite a bit less than $3.25.  In fact you could almost have bought the entire company lock, stock, and barrel.

Looking at it another way: You are trading preferred shares worth $25 billion for common shares worth about $12 billion.  What about the other $13 billion?  Consider it a gift to Citigroup.  Maybe they will send you a thank-you note.

On the surface it seems like Citi got the best of this deal, yes?  The market seems not to agree.  Citi stock plunged -43% today on enormous volume.  Geithner’s desperate move indicates that Citi is even closer to collapse than most people thought.

I would like to think that Geithner has some grand plan up his sleeve, but I can’t imagine what it might be.  The best-case scenario is that he is stalling for time and hoping for a miracle.  I doubt he will get one.

What I don’t get is why it is so critical to save Citi at any cost.  We have plenty of other banks.  My solution is simple: Shut. It. Down.Have FDIC take Citigroup into receivership, pay off the depositors, and sell off the assets to the highest bidder.

This will almost certainly mean that Citigroup shareholders and bondholders lose their entire investments.  Too bad for them, but they knew they were taking a risk.  Nobody forced them to into the deal.  You can’t say that about us taxpayers.  Why should the money we have no choice but to send the IRS go into the pockets of Citi?