The U.S. government has bailed out Citigroup Inc, once the nation’s largest financial institution, agreeing to guarantee most of the potential losses on $306 billion of high risk assets AND inject $20 billion of new capital from the Troubled Asset Relief Program (TARP) … in its biggest rescue of a bank yet. This comes after Citigroup received a $25 billion bailout just a few weeks ago (which it used for acquisitions rather than for mortgages or business loans!!!).
Citigroup’s rescue marks the latest government effort to contain a widening financial meltdown that has caused the disappearance or bankruptcies of companies including American International Group, Bear Stearns, Lehman Brothers, Washington Mutual, Fannie Mae, and Freddie Mac.
Citigroup has the farthest international reach of any U.S. bank, with operations in more than 100 countries. The bank was widely perceived to be too big to be allowed to fail, because any collapse could cause financial havoc around the globe.
According to the New York Times, the credit crisis appears to be entering another treacherous phase despite a $700 billion federal bailout, Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. All across the banking business, easy profits and a booming housing market led many prominent financiers to overlook the dangers they courted.
While much of the damage inflicted on Citigroup and the broader economy was caused by errant, high-octane trading and lax oversight, critics say, blame also reaches into the highest levels at the bank. Earlier this year, the Federal Reserve took the bank to task for poor oversight and risk controls in a report it sent to Citigroup.
The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.
Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.
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