The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their shares diluted. A larger ownership stake by the federal government could fuel speculation that other troubled banks will line up for similar agreements. […] As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares — such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority — to follow the government’s lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal measure of banks’ capital known as “tangible common equity,” or TCE.To me, this looks like a prelude to implementing Plan N on a large scale, especially if a number of banks line up for the stock plans. Citigroup won't be the last bank that the taxpayer has a 40% share in. Not by a long shot.
We'll see how this deal shakes out. Bottom line, it means the government is deciding which banks it now has to save (or the stock becomes worthless) and which ones it can let die, and it's doing so with our tax money. Of course, when Obama has no choice but to pull the plug, that common stock the taxpayer owns becomes...you guessed it! Worthless!
Which was the whole point of the preferred stock in the first place. The real point is to prop up the stock price so that the TCE mentioned up there is healthy enough so that the Obama administration doesn't fail Citigroup on the stress test.
It knows Citi is going to fail. So it's propping them up now. Then, when the stress tests are done, voila! All the banks pass! Crisis over! We win! Nobody has to be "nationalized" and the banks get all the billions they want through the back door manipulation of common stock.
It's a pretty good scam.
It won't save the financial system.
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