CItigroup Is Near Nationalization - Updated

There is much attention this morning to reports that the US may not only convert its $45 Billion Dollar bailout of Citigroup into common stock, but that our tax dollars may go to buy up to a 40% stake in the insolvent bank.  Mike Shedlock has done an excellent analysis of the report, and Barry Ritholtz has also noted that we are proposing to throw good money after bad.  Best of all is Karl Denninger's analysisposted on his blog.  Henry Blodgett had joined the debate as well pointing out that at current valuation converting the taxpayer's $45 Billion preferred into common would result in an 80% stake not a 40% stake as the insolvent bastards propose.

Taking another stake in the bank is a bad idea.  Throwing more money at the bank will not work.  How much more will the government commit waste of our tax dollars?  More than the whole is worth?  If you or I had an old family car in need of repair, we would look at the cost of repair in relation to its market value.  No prudent man would pay more for repair than the item is worth.  No government should spend more to fix a problem than the problem is worth.  Citigroup's current market value - the sum of the outstanding shares of the enterprise is approximately $12 Billion.  Does adding $40 Billion to the enterprise make sense?  More than 3.5 times its cost?  For an insolvent company that is ready to be taken over by the FDIC?  Where is the prudence?  See for yourself.  Here is Citigroup's chart:

Either liquidate Citigroup because it is insolvent, or nationalize it to preside over an orderly liquidation.  Just don't waste more money trying to save an insolvent bank.  We roundly criticized Japan for maintaining zombie banks during their 20 year depression.  Why should we follow in their footsteps?  There is going to be paid either way, but the question is whether the pain should be quick and deep to get it over - which will hurt most those with a financial stake in the bank (stockholders and bondholders), or should we drag the pain out slowly, every day watching another crisis, spending taxpayer dollars with another bailout and spreading the loss and pain to the entire nation over 20 years.   Neither solution is good, but my vote is to make those that took the risk and benefited from the gain to take the loss.  Not the taxpayer.  Short term nationalization of banks now is what is needed to liquidate the banks and purge the rottenness out of the system.  Only when we have rid ourselves - through bankruptcy or the equivalent - of these insolvent banks will we be able to recover the economy and start the growth cycle anew.

Oh and by the way, its time to move your money to a local community bank that you know is solvent.  The return to Main Street is underway.  Do business with people you know and trust.