Pump and Slump: Will Citi Sleep with the Fishes?

A couple of years ago, the mighty Citigroup traded at around $50 a share. Today, March 5, the price hovered around $1 and for a while was below a buck. In other words, one of the largest financial institutions in the world is in effect a penny stock. At one time, a descent to that level would have been enough to get a company delisted from the New York Stock Exchange, but standards have been relaxed.

Penny stocks have traditionally been associated with unscrupulous brokerage practices, such as the “pump and dump” scheme graphically illustrated during some episodes of The Sopranos (photo). A look back at the record of Citi during the past decade does not suggest a moral compass much different from the wise guys of Northern New Jersey. As U.S. PIRG Education Fund notes in its recent report Failed Bailout, Citi helped crooked companies such as Enron carry out deceptive transactions and itself set up scores of entities in offshore tax havens such as the Cayman Islands in order to avoid both taxes and oversight.

Citi’s actions had an impact beyond its own unjust enrichment. As Multinational Monitor editor Rob Weissman and his colleagues show in their new report Sold Out, Citigroup played a key role—thanks to $19 million in campaign contributions and $88 million in lobbying expenditures—in bringing about the demise of the Glass-Steagall Act and other deregulatory moves that paved the way for the current meltdown of the financial system.

Yet Citi’s management is, to a great extent, no longer in control of the company’s fate. Today it is the federal government that is in effect trying to pump up the bank and its stock. The Obama Administration, regrettably, is perpetuating the idea that Citi is too big to fail and thus requires a seemingly unlimited commitment of public resources.

Unfortunately for U.S. taxpayers, the pumping will not be followed by a timely dumping of the federal holdings in Citi at a fat profit. In fact, the federal capital infusions, loss-sharing agreements and loan guarantees are not stabilizing the company and pushing up its stock price. The more the feds put into the bank, the less the market seems to think it is worth. This downward move is attributed in significant part to short-selling of Citi’s common stock by hedge funds. At one time, those funds were apparently in cahoots with Citi. Last fall the Senate Permanent Subcommittee on Investigations charged that Citi was one of the banks that had helped offshore hedge funds engage in tax avoidance. I guess there really is no honor among thieves.

The U.S. government is now in the ridiculous position of having made commitments potentially costing hundreds of billions of dollars to a bank that the stock market, as of today, thinks is worth a total of only about $5 billion. As long as the Administration avoids the seemingly inevitable need to nationalize and reorganize Citi and the other large zombie banks, its strategy amounts to little more than “pump and slump.” Despite the efforts of the feds, the bank whose motto is “the Citi never sleeps” may soon be sleeping with the fishes.

Blurring the Bailouts

This is the time of year when most U.S. public companies file their 10-K annual reports with the Securities and Exchange Commission, which in turn makes them available to the public through its IDEA web page (formerly EDGAR). These reports include sections in which management discusses the firm’s performance over the past year and tries to put the best face on the financial results.

Many companies are, of course, reporting disappointing results this time around, but perhaps the most awkward filings are the ones being made by companies that had to get bailed out by the federal government to get through the year. Let’s take a look at how they are talking about being wards of the state.

We don’t yet know how General Motors is dealing with this challenge, since it notified the SEC that its 10-K will be late. So let’s focus on two of the other biggest supplicants: Citigroup and AIG. The first lesson, apparently, is not to use the term “bailout” when talking about being bailed out. The term appears nowhere in either firm’s 10-K.

Citi instead employs the bland statement that “the Company benefited from substantial U.S. government financial involvement.” Substantial, indeed. Citi matter-of-factly describes the capital infusions, loss-sharing agreements and loan guarantees through which the feds have made a commitment potentially costing several hundred billion dollars to keep the giant bank holding company afloat. With all the references to UST and USG, a casual reader might think Citi was referring to conventional investors rather than the U.S. Treasury and the U.S. Government.

AIG adopts a more narrative approach, writing that: “By early Tuesday afternoon on September 16, 2008, it was clear that AIG had no viable private sector solution to its liquidity issues. At this point, AIG received the terms of a secured lending agreement that the NY Fed was prepared to provide.” This does not quite capture the gravity of events that the New York Times, for example, reported on in a front-page story headlined: FED IN AN $85 BILLION RESCUE OF AN INSURER NEAR FAILURE; U.S. GETS CONTROL; POLICY REVERSAL ARISES FROM GROWING FEAR OF GLOBAL CRISIS.

Aside from downplaying the gravity of their bailouts, the Citi and AIG 10-Ks are less than lucid on what led up to their troubles. In describing conditions in 2008 that led to a $27 billion net loss, Citi takes no responsibility. The causes, instead, are said to have been “continued losses related to the disruption in the fixed income markets, higher consumer credit costs, and a deepening of the global economic slowdown.” Contrast this to its 10-K of two years ago, which stated: “We enter 2007 with good business momentum, as we expect to see our investment initiatives generate increasing revenues, and are well-positioned to gain from our balanced approach to growth and competitive advantages.” In other words, when things are going well, management strategy gets the credit; when the red ink begins to gush, impersonal market forces are to blame.

AIG, which reported an astounding $99 billion net loss for the year, also paints itself as a victim of conditions outside its control, saying “the 2008 business environment was one of the most difficult in recent decades.” The difference with Citi is that AIG’s management is blunter about the continuing dismal prospects for the company. The notes to its financial statements include a section entitled “Going Concern Considerations” that raises the possibility that the company may need yet more government assistance and that, even then, its survival is far from a sure thing.

Perhaps the most telling parts of the reports are the sections in which the companies have to disclose significant legal proceedings in which they are involved. It takes more than 7,000 words for AIG to summarize all of its legal problems, including about a dozen securities fraud class action cases. Citi engages in a similar recitation.

While the two companies are still in a state of denial about their responsibility both for their own circumstances and for the larger financial crisis (as illustrated in the image above from Citi’s website), the existence of these legal proceedings may see to it that they are eventually held accountable for their financial misdeeds.

A Missed Opportunity

In three public appearances—town hall meetings in Indiana and Florida as well as a prime-time news conference—President Obama has achieved a rhetorical tour de force in promoting the economic recovery legislation now before Congress. His remarks have skillfully discredited the government-bashing and market fundamentalism that have dominated U.S. political discourse for the past quarter century.

One of Obama’s most effective points has been the need to turn the current crisis into an opportunity. He argues that proposed spending provisions relating, for instance, to school construction, renewable energy development, and the computerization of medical records will help both in boosting short-term economic activity and in providing the basis for longer-term improvements in education, energy independence and healthcare efficiency. Rarely has the case for public investment been made so passionately and so eloquently.

Would that the same could be said about the speech given by Treasury Secretary Timothy Geithner (photo) about the Administration’s plan for revamping the financial bailout. First, it felt odd for a cabinet officer to be introduced by a member of Congress—Senate Banking Committee Chairman Chris Dodd. Second, the speech was surprisingly vague on some key points, and Geithner did not take any questions.

The speech began with a recitation of the dismal features of the ongoing financial crisis, which he seemed to attribute more to loose monetary policies than to the predatory practices that saddled so many homeowners with unsustainable mortgages. Geithner spoke of failures in the regulatory system without mentioning that, until nominated for the Treasury post, he was part of that system as the head of the Federal Reserve Bank of New York. That awkward fact may explain why his criticism of the bailout policies pursued by his predecessor Henry Paulson was rather muted. “The actions your government took were absolutely essential,” Geithner insisted, “but they were inadequate.” A lot of adjectives come to mind about Paulson’s track record. “Inadequate” is hardly the most apposite.

When it came to the plan itself, Geithner seemed mainly concerned to give the appearance of dynamism, even resorting to quasi-military terminology in saying that Treasury and other agencies “will bring the full force of the United States Government to bear to strengthen our financial system.”

And what will this force seek to achieve? Geithner then switched to a medical metaphor to say that banks will be subjected to a “comprehensive stress test.” This seemed to mean a closer look at their balance sheets. But instead of suggesting any crackdown on institutions whose financial records reveal past shenanigans, Geithner suggested that those banks with more serious problems will be given access to a new “capital buffer” provided by Treasury. In other words, more bailout money for those institutions that screwed up the most.

The Treasury Secretary went on to describe a Public-Partnership Investment Fund that would “leverage private capital” to begin a process of relieving banks of the toxic assets that are now said to be the reason why credit is not flowing. Yet Geithner did not adequately explain why the financial markets would suddenly become enamored of assets that they are currently shunning.

A more straightforward portion of Geithner’s plan is the idea of injecting at least $500 billion and perhaps up to $1 trillion from the Federal Reserve to unfreeze the market for consumer and business borrowing. A big part of this market relates to credit cards, so the Administration seems to be suggesting that we try to ride out the recession by using more plastic.

Geithner left perhaps the most important feature of the plan—foreclosure assistance—for last and then said it was too soon to announce full details.

Apart from laudable provisions relating to transparency (including a new disclosure website), there is not much in the Geithner plan that represents a fundamental break from the Paulson approach to the crisis. According to the New York Times, Geithner resisted calls from other Administration officials to take a tougher approach toward the big banks. The result is a new plan that, aside from the restrictions on executive compensation, continues to coddle the large financial institutions that brought the country to its current precarious condition.

By putting its financial policy in the hands of a man who seems to have accepted the cowboy culture of Wall Street, the Obama Administration is wasting the opportunity to use the crisis to achieve fundamental change in the banking system. Instead, the new transparency measures may end up revealing that the Geithner plan is headed for the same dead end as that of his predecessor.

A Complete Break?

The contradictory impulses of the federal government were on full display today. At one location on Capitol Hill, a group of so-called Senate moderates were meeting to strip some $80 billion out of the Obama Administration’s economic recovery plan. According to press accounts, they were mainly targeting proposed spending related to education, ranging from Head Start programs to Pell grants for college students. I guess they are telling us that in these hard times we shouldn’t be lavishing taxpayer funds on fat cat students.

Meanwhile, in another part of Capitol Hill, the Senate Banking Committee heard testimony from Elizabeth Warren (photo), Chair of the Congressional Oversight Panel that was created by the Troubled Asset Relief Program (TARP) legislation enacted last fall. Warren gave a preview of her panel’s new report that will contain estimates that, in its purchases of capital stakes in major banks, the Bush Treasury Department overpaid by some $78 billion.

Want to take bets on which group—students or banks—end up keeping their $80 billion?

Warren’s statement was based on a valuation study of a sample of the banks that got federal infusions. “Despite the assurances of then-Secretary Paulson, who said that the transactions were at par,” Warren said, “Treasury paid substantially more for the assets purchased under the TARP than their then-current market value.”

Being generous, Warren said that Treasury may have overpaid as part of a deliberate policy to increase the amount of assistance being given to the banks to enhance the stabilization effort. As I see it, the overpayment could just as easily be seen as incompetence or a corrupt conveyance of value by Treasury officials to their friends in the financial community.

Warren was joined at the hearing by Neil Barofsky, the TARP Special Inspector General, whose testimony echoed her concern about the failure of Treasury to explain the criteria it applied in making its TARP payouts last year. Barofsky also expressed frustration about the refusal of the TARP recipients to reveal what they are doing with the funds. Yet he made it clear that the era of non-accountability is over. Barofsky said his office is moving ahead with plans to ask all recipients for an accounting, and in some cases—such as Bank of America—he is launching an audit of where the TARP money went. Even more tantalizing was Barofsky’s statement that his office has “opened several criminal investigations.”

Warren and Barofsky’s aggressive approach meshes with the Obama Administration’s stance on executive pay, which was announced in the wake of revelations that bailed out Wall Street firms had distributed a total of some $18 billion in end-of-the-year bonuses. It’s unfortunate that the plan does not apply to the many companies and their executives who already took the money (from taxpayers) and ran (to the bank to deposit their bonus checks). Yet, given the likelihood that many more corporations will be receiving federal help in the months to come, some top executives may finally have to endure some sacrifices.

What worries me, however, is that the Administration’s assault on executive pay may be an effort to placate the public in advance of the big new bailout plan that Treasury Secretary Timothy Geithner is expected to announce next week—a plan that could include the creation of a “bad bank” to allow financial institutions to unload their toxic assets onto the taxpayers. Cracking down on the compensation of bank executives feels good, but it will not relieve the pain of another ill-conceived giant bailout.

Given the state of the economy, more federal intervention may be inevitable. Yet Geithner will have to make it perfectly clear next week that the Obama Treasury Department has made a complete break with the irresponsible and opaque policies of the former Paulson regime.

Note: Transparency is an issue not only for the TARP program, but also for the economic recovery plan. The stimulus legislation includes provisions for federal disclosure of money flows, but a new coalition is also calling for greater transparency in the way the states will use those funds.

Banking Badly

The markets are abuzz with speculation that the Obama Treasury Department may use a scheme known as a “bad bank” as a new gambit in trying to resolve the widening financial crisis. Despite its name, the concept does not involve pillorying corrupt and reckless financial CEOs for their sins—as President Obama in effect did Thursday in expressing outrage over Wall Street bonuses. On the contrary, it is a way of absolving banks for their misguided lending and investment practices by having the government acquire their tainted assets and place them in a separate entity.

If this sounds familiar, it’s because it is essentially what former Treasury Secretary Henry Paulson insisted back in September was essential to the survival of capitalism. Yet after he steamrolled Congress into giving him authority to spend $700 billion on such purchases, he turned around and pursued an entirely different strategy of injecting massive amounts of capital into the banks. Since that approach failed to restore normalcy to the system, Paulson’s successor Timothy Geithner apparently wants to turn the clock back five months.

The mystique surrounding the bad bank idea comes from the fact that Sweden employed the technique to resolve a similar financial crisis 15 years ago. As the New York Times gushed recently: “With Sweden’s banks effectively bankrupt in the early 1990s, a center-right government pulled off a rapid recovery that led to taxpayers making money in the long run.”

Creating a bad bank is being depicted as an alternative to nationalization of major financial institutions. In fact, stock markets shot up on Wednesday after Geithner said the Administration would “do our best to preserve” the system of private ownership of banks.

What bad bank proponents tend to overlook is that the plan would probably involve nationalization as well. This is what happened in Sweden, where the government did not just relieve banks of non-performing loans and then leave them alone. Gota Bank, one of the weakest institutions, was nationalized and was compelled to merge with Nordbanken, which had been owned partly by the government but was then taken over completely (and privatized years later).

There are some other details about the Swedish experience worth noting. First, the government did not acquire the problem assets of all banks, though it did guarantee their obligations. The main bad banks were the ones spun off from Gota Bank and Nordbanken. Second, the troubled assets the government took over via entities called Securum and Retriva were mostly loans to commercial property owners and shares in industrial companies. Securum and Retriva took control of those properties, and when the commercial real estate market rebounded, they were able to sell off those holdings easily.

The financial world has gotten more complicated since the early 1990s. The toxic assets polluting the balance sheets of major U.S. financial institutions today are complex instruments such as mortgage-backed securities and collateralized debt obligations. These represent packages of large numbers of loans that cannot easily be disentangled. It is one thing to resell discrete office buildings and shopping malls but quite another to seize and resell thousands of bundled home mortgages. Does the federal government want to become a gargantuan version of those amoral people on late-night infomercials bragging about buying up and then reselling foreclosed homes?

Rather than wasting vast additional sums in a bad-bank bailout, why doesn’t the federal government direct its resources toward the creation of a “good” bank? The Federal Reserve is already acting not just as the lender of last resort to banks but has also provided loans to non-financial corporations by purchasing their commercial paper. Why stop there? If the for-profit banking system really is dysfunctional, then the solution may be to have the federal government step in to replace or supplement it in a major way. That’s the kind of intervention that may actually do us some good.

Is Change Coming to the Big Bailout?

In his confirmation hearing for the post of Treasury Secretary this week, Timothy Geithner spent a lot of time apologizing for his personal income tax peccadilloes. Perhaps he should have also expressed some contrition for his role, as head of the Federal Reserve Bank of New York, in the failure of financial oversight that helped plunge the country into its current economic crisis. Geithner also played a part, albeit one subordinate to former Treasury Secretary Henry Paulson, in the disastrous bailout program that was supposed to clean up the mess created by Wall Street.

In his opening statement to the Senate committee, Geithner declared that the Obama Administration intends to “fundamentally reform” the bailout scheme, still known as the Troubled Assets Relief Program (or TARP) even though the original plan for the federal government to buy up those assets was abandoned in favor of capital infusions. Since it now appears Geithner will be confirmed by the Senate next week, he will have to make good on that commitment to reform. And not a moment too soon. A string of recent revelations shows that the system is more flawed than we realized.

There’s growing evidence that Treasury may not have been as diligent and impartial as it claimed when deciding which banks would get TARP money and which would be denied. Earlier this month, Fortune wrote about the case of OneUnited, a small Boston bank that received $12 million in TARP funds even though its regulator, the Federal Deposit Insurance Corporation, had alleged it was operating without effective underwriting standards and practices. The bank was also making suspicious payments for a beachfront house and a Porsche SUV apparently used by its top executives. This week the Wall Street Journal reports that OneUnited’s TARP infusion came after Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, made a plea on behalf of the bank.

While some financial institutions may have used political connections to get on the TARP gravy train, others tried to game the system. For example, Financial Week recently reported that a number of large insurance companies have acquired tiny banks and converted themselves into bank holding companies, potentially making them eligible for big capital infusions from the Treasury Department.

One bright spot is the position being taken by the TARP special inspector general, Neil Barofsky (photo), whose confirmation moved slowly through Congress but who is now cranking up his operation. Barofsky has just indicated that he intends to ask every TARP recipient how the funds are being used.

What a novel idea. After hundreds of billions of taxpayer dollars have been shoveled into the private, someone in the federal government is finally asking what’s being done with the money. It remains to be seen whether Geithner, once in office, makes a clean break with the Paulson debacle and follows Barofsky in demanding real accountability.

Citigroup (1998-2009) R.I.P.

Citigroup was born illegitimate and, having recently become a ward of the federal government, is now in the process of being dismembered. It’s amazing what a difference a decade makes. In April 1998 financial wheeler dealer Sandy Weill (photo) defied federal laws preventing marriages among banks, brokerage houses and insurance companies and pushed through a then-astounding $70 billion merger between his Travelers Group and commercial banking giant Citicorp. Weill won his bet that Glass-Steagall restrictions would fall, and he created what was then the world’s largest financial institution.

The deal was a desperate attempt to achieve the 1990s dream of the financial supermarket—institutions that would meet the public’s every monetary need, from checking accounts and business loans to mutual funds, homeowners insurance and credit cards. It was also a reach for supposed greatness by Weill and his Citicorp counterpart John Reed. As Business Week put it at the time: “In addition to chutzpah, Reed, 59, and Weill, 65, are propelled by their shared desire to go out in a blaze of glory.”

“Glory” is not exactly the way to describe the subsequent ten years of controversy, scandal and unwise investment and lending practices. Weill and Reed, each with the title of co-chief executives, bickered openly with each other. The company’s private banking operation was caught up in a money laundering investigation. Its credit card operations had to pay $45 million to settle lawsuits charging that consumers were improperly charged late fees. The bank was accused of enabling some of Enron’s accounting fraud. It was also embroiled in the WorldCom accounting scandal and had to pay $2.65 billion to settle lawsuits brought by investors in the failed telecommunications company.

But one of the worst moves was the decision in 2000 to acquire Associates First Capital, a pioneer in the subprime lending market that would later help to weaken the entire banking system. The acquisition, like the creation of Citigroup itself, was part of the mindset of trying to cover all corners of the financial services industry and of pumping up business even when transactions were excessively risky. The company touted plans to clean up the disreputable subprime business, but even that was a sham. According to the Wall Street Journal (7/18/02), branch offices were notified ahead of time when undercover “mystery shoppers” were being sent in to investigate loan origination practices.

Chuck Prince, who was named CEO in 2003, tried to clean up Citigroup in part by selling off pieces of the supermarket such as the Travelers life insurance business. Ultimately, though, Prince himself was disposed of as well. Yet the leviathan’s problems continued. Now his successor, Vikram Pandit, is taking a similar approach of lopping off parts of the company in the vain hope this will do the trick.

The just-announced decision to spin off the Smith Barney brokerage business into a joint venture with Morgan Stanley will bring in a much needed cash infusion of $2.7 billion. Yet it appears Citi is still living in a state of denial. It put out a press release headlined “Morgan Stanley and Citi to Form Industry-Leading Wealth Management Business Through Joint Venture.” What it really should have said is: “we screwed up royally, and despite getting tens of billions of taxpayer dollars, we’ve got to sell off some of our assets that are still worth something.” We’ll see how long the bravado continues as the company is forced to cut off more of its many limbs.

Once High-Flying Developers Now Looking for Federal Aid

Opponents of the auto industry bailout, who warned that it would prompt other business sectors to ask for similar consideration, are probably feeling vindicated. Only days after the Bush Administration did an end run around Senate Republicans and agreed to provide a Detroit rescue package using bank bailout funds, the Wall Street Journal is reporting that commercial real estate developers are seeking their own federal assistance package. They are warning that, without such aid, thousands of office complexes, shopping centers, hotels and the like could join the country’s foreclosure tsunami.

There’s one major difference between the auto industry and commercial real estate that justifies a bailout for one and not the other: the number and quality of jobs at stake. The Big Three provide hundreds of thousands of well-paying jobs (too well-paying according to certain Southern Senators) that have helped workers achieve a middle-class standard of living. Real estate developers, by contrast, are primarily responsible for substandard retail and janitorial positions. While the Service Employees International Union has helped improve wages and benefits for some building services workers, most of those jobs don’t take people far out of poverty. While it would be a shame for janitors and clerks to lose their jobs, preserving those positions does not have the same urgency as saving the estimated 1.2 million direct and indirect jobs linked to the Big Three.

Rather than bailing out their employers, it would make more sense to use federal funds to help retail and janitorial workers find better jobs elsewhere in the economy. In the speculative boom of recent years, the real estate business built far too many office buildings and shopping centers, and many of those properties will probably not survive the current shakeout. While there is a strong case that the country needs a domestic auto industry, it is much harder to argue that every commercial property needs to be kept in operation.

And if Congress does decide it is necessary to prevent a commercial real estate meltdown, it should keep in mind that these same developers now looking for aid have repeatedly pressured local governments for property tax abatements and other subsidies. A report I wrote last year (with two colleagues) on the big mall owner General Growth Properties, which is now struggling to survive, found that the company had received more than $200 million in such subsidies and another $9 million in savings as a result of aggressive filing of property tax assessment appeals. Previous (unpublished) research I did on the country’s largest mall operator, Simon Properties, found $380 million in subsidies and savings from assessment appeals. In both cases, the data come from an examination of only a portion of the malls owned by the company. Also remember that Wal-Mart used a gimmick called captive real estate investment trusts to avoid paying an estimated $2.3 billion in state taxes.

Perhaps Congress should require developers to use part of any bailout to repay the subsidies they received from local governments that are now facing dire fiscal conditions.

But even that would not provide a compelling case for a commercial real estate bailout. In a country that still hasn’t devised a comprehensive plan for stopping home foreclosures, we shouldn’t be worrying about saving the owners of superfluous office towers and big box stores.

Congress Busts the UAW

The United Automobile Workers has been effectively decertified as the collective bargaining representative of workers at General Motors, Ford and Chrysler. And the main union buster was not management, but rather the Congress of the United States.

That’s only a slight exaggeration of the facts. The UAW, fearing that its contracts at the Big Three would be voided if the automakers filed for bankruptcy, has made major new contract concessions to satisfy Congressional critics of a bailout that the auto companies insist is the only way they can avoid Chapter 11. In order to save its union contract, the UAW is being forced to destroy it.

It is infuriating that the UAW was put in this situation. First, there’s the obvious and widely noted double standard. The federal government has spent vastly more on the rescue of the financial sector while imposing no real conditions beyond token restrictions on executive compensation. By contrast, the auto industry, especially its workforce, is being put through the wringer.

Second, many of the members of Congress speaking out against the auto industry bailout are from Southern states where Japanese, Korean and European automakers have set up non-union plants with the aid of huge state subsidy packages. These lawmakers are functioning more like foreign agents than legitimate representatives of the United States.

And then there are the Congressional leaders who think they can remake the auto industry by insisting that the Big Three come up with new business plans to merit the federal intervention. Pressuring Detroit to move faster on the development of clean cars may be a good thing, but these would-be industrial policymakers are ignoring the fact that a bailout of the auto industry at this point is justified mainly as a way to prevent an accelerated collapse of the overall economy.

Yet, by pressuring the UAW to give up, for instance, what remains of the jobs bank program (a job security measure that provides nearly full pay for laid off workers), Congress is assuring that more people will end up on the unemployment rolls instead, thus taxing already strained state government budgets. Another of the main givebacks consented to by the UAW were delays in company payments to retiree health plans. This raises the odds that those plans, over which the UAW was previously pressured to assume administrative control, will collapse, forcing participants to turn to taxpayer-funded healthcare.

And these measures, which UAW leaders could implement without a vote of the membership, will apparently be followed by more wage concessions. Just when Congress is desperately trying to stimulate job creation and prop up family income in the larger economy, it is pressing the auto industry to take steps that will have the opposite effect.

The notion that the problems of the U.S. auto industry are the result of overpaid union workers (as opposed to managerial incompetence) is a long-standing myth that has been trotted out time and time again over the past quarter century. What’s amazing is that this fairy tale continues to be employed even after the UAW has made repeated concessions, and basic union wage rates (especially for new hires) are now not significantly different from pay levels at the U.S. operations of companies such as Toyota and Nissan. And what’s even more amazing is that the Democratic leadership of Congress has in effect compelled the UAW to make sacrifices that diminish the difference between union and non-union working conditions almost to the vanishing point.

The Democrats will be congratulating themselves if the auto bailout is approved, but they should be held accountable for making union workers pay so dearly for their survival.

Full disclosure: I am a member of UAW Local 1981, the National Writers Union.

Taking Our Money and Running Overseas

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.