It was only about week ago that the Treasury Department, the Federal Reserve and the FDIC rushed to put together an emergency rescue package for Citigroup consisting of a $20 billion capital infusion and protection against up to $306 billion in losses on the financial giant’s portfolio of mortgage-backed securities. This was in addition to an earlier $25 billion investment in Citi as part of the effort to prop up the country’s largest banks.
Now comes the news that an arm of Citigroup agreed to pay $10 billion to buy a Spanish toll road operator called Itinere Infraestructuras SA. Funny, I don’t recall Treasury Secretary Henry Paulson mentioning that the taxpayers were bailing out Citi so that it could speculate in the foreign infrastructure privatization market.
This caused me to wonder what else major financial institutions have been doing with their federal infusions other than expanding credit for U.S. consumers and businesses. We already know about the way in which some banks have used their money from Uncle Sam to buy competitors and the tendency of AIG executives to treat themselves to lavish retreats at public expense, but is Citi the only recipient that is sending some of its money overseas?
To answer this question I started with the tally of bailout recipients maintained by ProPublica and searched for recent announcements by those companies. I found, for example:
* Bank of America ($25 billion received) gave notice of its plan to exercise the remainder of its option to purchase shares in China Construction Bank Corporation (CCB) from China SAFE Investments Limited (Huijin). The purchase will increase B of A’s holdings in CCB from 10.8 percent to 19.1 percent. The cost was not reported.
* JP Morgan Chase ($25 billion) announced an enhancement of its cash management and trade services in India, which represented part of a $1 billion plan to expand the bank’s worldwide cash management and treasury business.
* Bank of New York Mellon ($3 billion) announced that it had received a license to initiate banking operations in Mexico.
Under normal circumstances, such announcements would merit no comment. But at a time when these institutions are receiving massive amounts of taxpayer funds, they take on a new significance. While the infusions of federal money were designed to expand the flow of credit in the United States, banks are using some of the funds to expand their foreign operations and investments. They are taking our money and running overseas.
And all this is happening while an anonymous U.S. Senator has placed a hold on the nomination of Neil Barofsky to serve as the special inspector general for the bailout. Apparently, some parties don’t want any close scrutiny of how hundreds of billions of dollars of public money are being bestowed on the financial sector by a federal government acting like an overindulgent parent at Christmastime.
great work Phil
will we get a share of the profits?
Surely you jest. What we’ll probably get is Citi seeking to do more infrastructure privatization deals here at home. That’s the ultimate: using public funds to privatize public assets.
Phil
You write, “to do more infrastructure privatization deals here at home.”
I thought that was to be the upcoming administrations stimulus plan: up to $1 trillion funding over two years for the private sector to do infrastructure, e.g. private mass transit plans that would also raise rental revenues for landlords along the new routes…
I wasn’t talking about the construction of new infrastructure, but rather those deals in which existing roads, bridges etc. are sold by governments to private entities, which then attempt to operate them at a profit. This does nothing to create jobs or stimulate the economy.
This sounds outrageous, but Citi’s alternative investment group is doing the Spanish deal. This is a unit that makes investments on behalf of outside investors. So it would be important to know how much – if any – of this $10B is Citi’s own money, versus third party money.
And yeah, it sure would be nice to see this kind of dough going to domestic infrastructure projects.
Phil,
As far as the hold on Barofsky’s nomination to be inspector general, holds are an informal (if well-established) “courtesy” that Senate leaders provide to members.
It is neither a legal mechanism nor an explicit Senate rule, and the majority leader is free to remove it if he/she thinks it’s abusive of the process or the larger Senate.
The implication is that a Republican has placed the hold on Barofsky’s nomination because they don’t want him looking too closely at the bail-out, but I’m not sure the majority leader would indulge a hold for that reason.
It wouldn’t be a surprise if the hold were coming from a Democratic member of the Senate, for reasons not directly related to Barofsky or the details of the bail-out — that is often the case with holds (i.e., they are used to apply leverage elsewhere).
Re Citigroup:
Citigroup has a substantial amount of its own money in the fund. See https://www.citigroupai.com/cai/instPortal/aboutCommitment.do
Re Barofsky:
I thought senators didn’t have to give a reason for a hold. In any event, the issue is now moot. Barofsky has been confirmed: http://www.washingtonpost.com/wp-dyn/content/article/2008/12/08/AR2008120803110.html
Phil Mattera