Spin Citi

No go on the Citigroup rebound. Stock's down another 20% to around $4 a share and falling here at 10:45 AM or so. Dan Wilchins at Reuters is already running down the list of what the Gubment can do, which boils down to four choices:

1. Government buys a crapload MORE of Citi preferred stock,
2. An AIG style multi-billion "loan",
3. An FDIC liquidation, WaMu style,
4. Government guarantees all Citigroup debts and derivative obligations.

Number 2 is the most likely, 3 cannot be allowed to happen, but I'm assuming the government will screw around with 1 first.

Which means of course option 4, the option that would actually work, won't be considered. Once the government starts acting as derivative counterparty for Citi, every bank in the country will want the same exact guarantee, period. It's the derivative obligations that are going to kill the banks, and they both know it...but eventually this is what will be have to be done. Banks still refuse to come clean on derivative debt and the fact the banks are basically insolvent because of it.

So yeah, we'll stick with 2. Big old loans. They've worked GREAT so far. Obama's Treasury Secretary is going to be the worst job on Earth.

But at least it's a job.