Government TARP Funds; Guaranteed Profits for Banks

A CNN Money article today about how Citigroup (NYSE:C) has supposedly put their TARP funds to use got my attention for a variety of reasons. The most ridiculous item in their list of disbursements of these TARP monies was the one about how, out of $45 Billion they recently received from the government, they put $10 Billion towards purchasing "mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac".

Citigroup (C, Fortune 500) said it had approved $36.5 billion in loans and other commitments backed by TARP during the fourth quarter of 2008, which included making $1 billion in student loans and $2.5 billion in business and personal loans. The bank also said it expanded credit lines and opened new accounts for credit cardholders.

But the bulk of the spending was earmarked for the housing market. Citigroup said it spent $27.5 billion to that end during the last three months of 2008, much of which went to purchasing mortgages in the secondary market, including $10 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. About $8.2 billion was earmarked for making mortgage loans to families and individuals with good credit histories."

WHAT THE HECK?!

So, let me understand this... we (the people / government) give money to Citigroup, which is still supposedly a private corporation... Citigroup then takes a substantial portion of that money and buys *GUARANTEED* investments back from the government from which it borrowed money?

And, here I thought the whole idea of loaning Citigroup $45BB was to allow *LEVERAGE* their balance sheet like a normal bank... meaning, loan 5 or 10 dollars for every dollar on the balance sheet. But, they do not even loan 1:1, and as part of their loans, they put that money into guaranteed government investments (since we already Nationalized Freddie / Fannie).

THIS IS INSANE!
At this point the corporate welfare needs to end, and the GOV should just lend DIRECTLY, as they'd certainly get more bang for the buck by far. I find this all sick.

OK, government... GIVE ME $10BB to loan, and I GUARANTEE I will lend $10.25BB. I, like Citigroup, will purchase $10Billion in government-guaranteed Freddie/Fannie debt, and I will expect to make between 4 and 5 percent return on that debt. I.E., I would, like Citigroup, use $10 Billion to ensure that I made 400 to 500 million per year in INTEREST payments on those government-guaranteed loans. Of that, I will lend half to consumers directly, and in doing so, I will be beyond the 1:1 ratio that Citigroup is under. Do you see the insanity in this all?

Now, sure, in theory Citigroup is supposedly going to pay back the government with interest, and at a higher rate than what it is getting on those Freddie/Fannie bonds, right? Sure! I will believe it when I see it (though, I do consider it more likely than GM and/or Chyrsler EVER paying back any money handed to them -- it is mathematically IMPOSSIBLE that they will ever make enough to cover their debts).

This bailout thing is ridiculous. All of it. There is no such thing as a "free market", so why do we pretend there is? We are going to do everything to push losses onto the government to ensure "profitablity and viability" of large mega-corporations, all because "they are too big to fail", even though it is quite acceptable to continue to let them merge further and further into ever more large companies. Insane, but brilliant (for those who are making out on these deals).