A Fair and Reasonable Proposal for Federal Bailouts

Senator Chris Dodd made an interesting proposal this afternoon, and on thinking further it seems to be one of the most reasonable and practical suggestions that we've heard during this crisis.

The Senator proposed that whatever givebacks, restrictions, haircuts, penalties, oversight, pay cuts and equity arrangements that are written into the bridge loans and funds to the automakers be applied in principle to all recipients of Federal bailout money including the Wall Street banks, and financials institutions like AIG and GE. This would include requiring written proposals for the restructuring and the use of this money and the adoption of a set of business reforms of the financial industry without exception.

This should include any funds provided by the Federal Reserve and Treasury. The Fed does not have any independent funds, all of them being provided and sustained by the US taxpayers through their debt and tax obligations. Oversight for this program would be conducted by an independent board set up by the GAO, and not the Fed or Treasury to avoid a conflict of interest.

It is a superb idea, and deserves the support of other Senators and congressmen.

We suggest that you write to your Senators about this today and express your support for a more even treatment of all businesses and people including the Wall Street banks. We sent the above wording to ours. Whatever is done must be fair and equitable.

Write to Your Senator

Citigroup and Key Officers including Prince and Rubin Named in Suit Charging Fraud

NY Post
'PONZI SCHEME' AT CITI
By PAUL THARP
December 4, 2008

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.

Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value.

However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in "suspicious" stock sales "calculated to maximize the personal benefits from undisclosed inside information," the lawsuit said.

The latest troubles for Rubin, Prince and others emerged in a 500-page investigation by Citigroup investors represented by law firm Kirby McInerney.

The probe was used to amend and add new details to a blanket investor lawsuit filed against Citigroup a year ago. The amended suit called the actions of Citi leaders "a quasi-Ponzi scheme" to hide troubles - and keep Citi stock afloat while insiders unloaded about 3 million shares between Jan. 1, 2004 and Feb. 22, 2008 for huge profits.

In addition to Citigroup, Rubin and Prince, the complaint names Vice Chairman Lewis Kaden, ex-CFO Sallie Krawcheck and her successor CFO Gary Crittenden.

Rubin cleared $30.6 million on his stock sales, while Prince got $26.5 million, former COO Robert Druskin got nearly $32 million and former Global Wealth Management unit chief Todd Thomson got $25.7 million, the suit said.

Citi denied the allegations and said it "will defend against it vigorously."

Breaking the ZIRP barrier

From Across the Curve:

T Bills
December 4th, 2008 11:42 am

I just spoke to a bill trader who noted that a large chunk of the bill list is trading at zero percent. He mentioned a point that I had forgotten but is worth noting. Bills always trade well in December because at year end there is demand for them as investors of every ilk dress up their balance sheets. He has seen that demand to a far greater extent than normal.

He says that given all that has transpired this year there will be enormous demand for bill through the entire month of December. He has seen demand from an eclectic group of investors from around the globe. He expects the treasury to announce shortly a series of cash management bills which would total about $100 billion.

In his opinion if they do not issue bills will scream through zero.

So get used to these low rates they are here for a while.

Let's revisit the current situation.



The comparisons are not quite focused with today in terms of bills and bonds, since the funding preferences of Treasury are different now than they were back then, but you get the general idea of 'Treasuries' and their role in a flight to safety in a portfolio allocation.