Bailout Monday Is Back

Following 'round-the-clock weekend negotiations, the federal government late on Sunday agreed to bail out yet another bank, this time giving the troubled Citigroup a $20 billion lifeline in the form of a direct investment and guaranteeing $306 billion worth of its shaky assets, the Wall Street Journal, New York Times, Financial Times, and others lead off their business coverage today. The latest intervention "marks a new phase in government efforts to stabilize U.S. banks and securities firms," the WSJ writes. "After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions." The deal calls for the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. to take on Citi's risky assets, essentially "insuring a slice of Citigroup's balance sheet," the WSJ writes.

According to the NYT, the Citigroup bailout plan could be the new blueprint for rescuing massive, precariously positioned banks. The big price tag, the thinking goes, is pretty small if the rescue plan succeeds in propping up the bank and in containing further fallout in the financial markets. Shares in the troubled banking group have plunged 83 percent this year, though Citigroup was up in early trading in Germany this morning, Bloomberg writes, as traders around the world cheered the news. "It really was a must-do thing," Bloomberg quotes a Sydney-based strategist at AMP Capital Investors as saying.

The WSJ provides a fascinating glimpse of a few tenuous trading days for Morgan Stanley in mid-September, when some vicious rumors triggered "a cascade of bearish bets" that nearly sank the Wall Street giant. Who was behind the bets that Morgan Stanley would fail? Some of the biggest names on Wall Street and some of the very firms that lobbied Washington hard to curb predatory short-selling, including Citigroup, Merrill Lynch, and UBS, the newspaper points out. One bank that plans to brave the markets is Britain's Standard Chartered. The bank confirmed it will proceed with a $3 billion rights issue, the FT reports, "aimed at boosting the emerging markets bank's capital reserves and easing investors' concerns about its ability to weather a severe economic downturn."

Today, President-elect Barack Obama will introduce his firefighting troika of economic chiefs: new Treasury Secretary Timothy Geithner, White House economic adviser Lawrence Summers, and Congressional Budget Office head Peter Orszag. According to the Washington Post, Summers, who was Treasury secretary in President Bill Clinton's final years, is the best-known of the three and will be taking a more behind-the-scenes role but one that will shape the new administration's economic policy. Geithner and Summers are expected to "make their early marks in directing a wave of government spending to try to stem a slump in economic activity and panic in markets," the WSJ writes. In other words, it's more capital for ailing banks and assuming more bad debt from their books, the newspaper adds. So far, so good. The stock markets rallied on Friday as news of the appointments leaked.

With so much change afoot in Washington, some are already wondering about the future of Federal Reserve Chairman Ben Bernanke, whose term doesn't expire until January 2010. The WSJ speculates that Summers looms as the heir apparent to head the Fed should Obama not reinstate the controversial central bank chief. Bernanke's admission to The New Yorker's John Cassidy that he and others underestimated their ability to contain the subprime crisis could very well prove harmful.

Grounding two corporate jets might not smack of the greatest show of contrition, but many on Wall Street hope that the Big Three automakers' symbolic gesture is well-received in Washington. That's because the "foundering Detroit automakers owe more than $100 billion to their bankers and bondholders, and Wall Street is starting to wonder how much of that will be paid back," the NYT writes. Such is Wall Street's exposure to auto risk that the widely lambasted performance of the GM, Ford, and Chrysler CEOs before Congress last week is now being seen by many as a catalyst for "the sharp sell-off in financial stocks last week, when banking shares fell to their lowest levels since the economic crisis broke out," the paper notes. Of course, the Big Three bosses will be back on Capitol Hill in a few weeks' time, arguing a more fleshed-out rationale for the $25 billion they are seeking. One big idea is to "Get Washington to help them sell more cars" through freeing up credit for new auto loans, writes the WSJ. "The government has to get credit flowing so that the market goes back to at least 14 million to 15 million [vehicles]. ... We can figure out how to survive at that level," one auto exec tells the WSJ.