In an interview with NPR’s Robert Siegel earlier this month, Treasury Secretary Henry Paulson boldly declared that he was well on his way to fixing the U.S. economy.
It hasn’t taken long, however, for reality to catchup with Paulson’s optimistic forecast — which, as others have noted, is beginning to look a lot like President Bush’s “Mission Accomplished” moment:
Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week.
Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend. Citigroup rose 53 percent to $5.75 at 8:37 a.m. in New York trading today.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and help restore economic growth. The decision came after New York-based Citigroup’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.
Should one doubt that Paulson could have been so audacious as to discount the possibility of another major bank failure at a time when, as a high-level government official, he had to have been aware of Citigroup’s tenuous financial situation, consider this exchange:
Siegel: But just to clarify, you’re saying no one is saying now there could be a failure of a major institution that we wouldn’t be able to deal with. There could be a failure of another major institution, though.
Paulson: I got to tell you, I think our major institutions have been stabilized. I believe that very strongly.
I also believe — very strongly — that based on nearly all economic indicators, Mr. Paulson’s efforts to centrally plan the recovery of the U.S. economy by transferring wealth from the middle class to the politically connected rich have thus far failed (at improving the economy, that is).
Nonetheless, Mr. Paulson’s supporters on Wall Street and in the business press will undoubtedly claim the Treasury Secretary has to present a somewhat rosy picture of the economy, lest the stock markets crash on an ill-considered word or phrase. But while there’s certainly something to be said for not screaming about the sky falling during an economic downturn (as Bush and Paulson did to win congressional passage of the banker bailout), to an amateur economist like me, telling people that the major financial institutions have all been stabilized a little over a week before one of the largest banks in the world fails seems, well, a bit destabilizing.