The U.S. government will intervene to help giant Citigroup with a plan approved late Sunday by federal regulators after a weekend of nonstop negotiations. Reactions have been swift — including that of Wall Street, where stocks rose in early trading today.
“The complex plan calls for the government to back about $306 billion in loans and securities and directly invest about $20 billion in the company,” the New York Times reported. “The plan, emerging after a harrowing week in the financial markets, is the government’s third effort in three months to contain the deepening economic crisis and may set the precedent for other multibillion-dollar financial rescues.”
Here are a few other early reactions to the move:
London’s TimesOnline’s Tom Bawden says the signs of trouble were there, but too few saw them:
“Citigroup moved so heavily into collateralised debt obligations (CDOs), or pools of bonds, that it became one of the biggest owners of these toxic securities and, as a result, is one of the biggest victims of the financial crisis. These losses, in turn, have exposed flaws that had concerned critics of Citigroup for some time but which had been masked by the string of healthy profits that the credit boom ensured. Chief among these flaws is that, in its quest to become a global financial services supermarket offering retail, commercial and investment banking, Citigroup had become an unwieldy, unfocused, inefficient operation with bloated costs.”
Bloomberg News quotes strategist Nader Naeimi: “It really was a must-do thing,” said the Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”
Today’s Wall Street Journal story said, “The planned arrangement with Citigroup appears to be an attempt to thread that needle by giving the company some breathing room until markets calm.”
Meanwhile, in Chicago, President-elect Barack Obama this morning unveiled his economic team, in the context of what he termed an economic crisis of “historic proportions.”
“President-elect Barack Obama, calling for ‘sound judgment and fresh thinking’ to address the nation’s economic crisis, announced Monday his selection of Timothy Geithner, president of the New York Federal Reserve, as Treasury secretary, and Larry Summers, a former Treasury secretary, as head of the National Economic Council,” David Jackson and Susan Page of USA Today reported.
“Obama, who is setting the pace among modern incoming presidents for picking a White House team,” they added, “also named Christina Romer, an economics professor at the University of California at Berkeley, to chair his Council of Economic Advisers, and Melody Barnes, of the Center for American Progress, as director the Domestic Policy Council.”
The announcements, they said, “amounted to a display of assertiveness by the incoming administration in the face of increasingly grim economic news.”
Susan Albright is a managing editor of MinnPost. She can be reached at salbright [at] minnpost.com.