The handing over of yet more taxpayer money to CitiGroup has temporarily avoided a truly systemic breakdown of the world banking system but, as always, the real problems have not been addressed and the inevitable collapse has just been delayed.
Bloomberg reported that "Citigroup will cover the first $29 Billion of pre-tax losses from the $306 Billion troubled assets pool, in addition to reserves it already set aside.
Citigroup will accept 10% of losses above that amount with the Government (ie the taxpayer), responsible for 90%.
The Treasury is absorbing $5 Billion in losses and the F.
D.
I.
C.
absorbing another $10 Billion.
If the portfolio plummets, the Fed will come up with a loan for the remainder.
" Citigroup has already received $25 Billion under T.
A.
R.
P..
CitiGroup has 185 million credit card accounts worldwide and even before the current stage of the Financial crisis, the increase in losses year on year had surged to 67% with a concurrent increase in accounts 90 days or more past due.
Credit defaults are rising and it is inevitable that this major source of income will be reducing all the time.
Nothing has occurred to enable the credit card debtors to pay back what they owe or to stop the exponential charges which accumulate when payments are overdue.
The longer they are overdue, the more difficult to pay the debt back.
So we can assume that CitiGroup will be extremely vulnerable on this front and incur more losses.
The above does not include the ever present Pale Horseman of the derivatives world.
U.
S.
Commercial banks alone account for $182.
1 trillion in notional derivatives.
The frightening thing about this is that only $8.
2 trillion is regulated by an Exchange, the rest being over the counter and not subject to any regulation.
Mid year 2008, Citibank N.
A.
held $37.
1 Trillion in derivative bets with only 6.
6% regulated by an exchange.
That makes the derivatives exposure of Citi 5 times the exposure that Lehmans had when it went to the wall.
The fallout from that one is still being felt by banks the world over.
The danger of these derivatives rises as the economy worsens and who will pick up the bill when the inevitable debacle arrives ? The taxpayer, who should be getting something tangible for their hard earned tax dollars such as a real easing of their debt, a chance to keep their homes, investment in creating real jobs in production, not the publicly funded largesse to Paulson's cronies on Wall St.
that they have been subject to so far.
The mal adroit policies of the Treasury continue to take precedent over common sense.
This, despite the mea culpas by Paulson himself, admitting that his cunning plan was not improving the situation.
Does anyone in Washington even think of the real economy anymore or do they mistakenly assume that they can just throw Fiat Money at Financial Institutions in the hope it will go away? The ability of the U.
S.
to continue to throw this money down the drain still relies on the willingness of China, Japan and the Oil kingdoms and they will be seeing the yields on Treasuries slip down to the level where inflation will erode their gains.
Gold is making a comeback in reserves as an inflation proof asset.
These latter countries also have to deal with their own economic disasters and need to have real money to address the issues, not promises from a fundamentally bankrupt entity to pay them back the money.
The growing distance between East and West ogres badly for the U.
S.
The coalescence of countries into regional blocks, with their associated pragmatism, is a sign of things to come.
How the U.
S.
attacks it's real economic problems will be determined by the wisdom of some and the patience of others.
Whichever way you look at it, the U.
S.
must drastically lower living standards and expectations commensurate with it's debt and existing production infrastructure to rebuild it's competitiveness.
The exposure of the U.
S.
taxpayer to the toxicity of CitiGroup's "Assets" has only served to accelerate this downward trajectory.