Fools for the Citi

OVER the past 80 years, the United States government has engineered not one, not two, not three, but at least four rescues of the institution now known as Citigroup .

Reports the New York Times. The article has a brief history of the various bailouts, including this eerily familiar item about the 1929 Crash:

Before the crash, industry practice allowed National City not only to underwrite securities but also to employ a sales army to peddle them to depositors. After Congressional hearings determined that this conflict of interest was a major cause of the debacle, lawmakers passed the Glass-Steagall Act, separating activities of commercial banks (which offered plain old savings accounts and loans) from those of investment firms (which trafficked in more highflying endeavors like stock trading and underwriting).

The Glass-Steagall separations were eventually eliminated, but restoring them has become a key part of the discussion over regulatory reform. Our current crisis saw banks like Citi underwriting mortgage-backed securities (those CDO's you hear about), selling them to their customers, and also keeping pieces of some of them on their own books. They often kept the most risky pieces, hence the so-called toxic asset problem (which, if I'm not mistaken, still persists).

While the history lesson is fun, it's not all academic. The current Citi bailout amounts to $45 billion in TARP money, plus $300 billion in FDIC guarantees. Getting this taxpayer money back, or realizing we never will and deciding on how to avoid repeating this mistake, is critical before we turn Ken Burns loose on the documentary of the Great Financial Collapse.