The government is handing even more money to Citigroup and the NYT is doing its best to cover up. The NYT reports on the fact that the government's preferred shares in Citigroup are being converted to common shares at a price of $5 per share, more than twice the market price. The article describes this move as, "giving taxpayers more risk, but more potential for profit if the company recovers." This is extremely misleading. At the point of the transaction, the government is effectively losing half of its money, which had already been invested at a return that was far below market rates. At one point the article notes that the government holds controlling stakes in Fannie Mae, Freddie Mac, and AIG. It then tells readers that "none of those deals have turned out well," implying that government control has caused the losses at these institutions to be larger than they would have been otherwise. It is unlikely that they would find any economists who would make this claim. All of these institutions had enormous losses locked in at the point where the government took them over. It is true that the Bush administration underestimated the size of these losses, but if the government's control has increased the losses at these institutions, it is not clear how.
--Dean Baker