vaughn

U.S. Rejects Nationalization of Citi and BAC

The nationalization of banks which received Tarp preferred money will be nightmare for treasury.
Let us agree what the nationalization of bank means: it means the total wipe out of equity interest, including preferred.
Take citigroup, for example. Treasury holds 45 billion preferred in Citigroup. By nationalizing Citigroup, the treasury (oops, that's you) will suffer an immediate loss of 45 billion, not to mention the nationalization will trigger CDS event and complicate the 40 trillion derivative contracts written by Citigroup which will definitely bring down massive bank failures around the world which will eventually bring down the US government itself.

How do you feel when treasury reports that treasury (oops, that's you again) just suffered an loss of 45 billion in preferred, plus circa 250 billion loss in guarantee of Citigroup's assets, plus circa 600 billion loss in insuring deposit (assuming 20% haircut of Citigroup's assets of 3 trillion, including off balance sheet assets) for a grand total of circa 1 trillion? Won't you be mad? I guess not cause we might not survive the resulting chaos.