Citigroup Buys Wachovia Banking Operations, F.D.I.C. Downplays Economic Drama

Just when you thought the economic situation couldn’t get much more insane, lightning strikes again: Citigroup is buying the banking operations of Wachovia.

The F.D.I.C. has been quick to state, “Wachovia did not fail, rather it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the F.D.I.C,” hoping that this sort of statement will actually curb the panic spreading virally through the United States over the dubious position of the American economy.

According to the New York Times:

Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the distressed mortgage market.

Citigroup will pay $1 a share, or about $2.2 billion, according to people briefed on the deal.

The F.D.I.C. said that the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk…

Timothy F. Geithner, the president of the Federal Reserve Bank of New York, personally reached out to executives involved in the process to assess the situation and spur it along. Citigroup and Wells pressed regulators to seize Wachovia and let them buy its assets and deposits, as JPMorgan did with WaMu, or provide some sort of financial guarantee, as regulators did with JP Morgan’s acquisition of Bear Stearns, according to people briefed on and involved with the process.

Both Citigroup and Wells Fargo were deeply concerned about absorbing Wachovia’s giant loan portfolio, which is littered with bad mortgages, these people said. Bankers had little time to assess the risk.

Citigroup executives considered Wachovia a make-or-break deal for their consumer banking ambitions. With Wachovia, Citigroup would gain one of the pre-eminent retail bank operations after struggling to build one for years. It will also give Citigroup access to more stable customer deposits, allowing it to rely less heavily on outside investors for funds.

Today the House will vote on a $700 billion bailout plan. Long term reforms are still necessary, but within the short term a plan must be formulated to jumpstart the economy. The Bush Administration seems to believe that any plan is better than no plan, yet one can only wonder  how Americans are to gain confidence in their economy when the government's negligence of regulatory measures has led to apocalyptic gambling of billions of dollars, which now will be paid for by burdening Americans with increased taxes under the bailout.