Dean Baker pointed out a myopic Washington Post story on Saturday reporting that the Treasury will make a several-billion-dollar profit on its Citigroup bailout. It’s worth pushing back on this meme, especially since The Wall Street Journal rewrites the Post’s story today.

Yes, it’s true that if the government sells its Citi shares for $32 or $33 billion it will make a $7-$8 billion profit on its $25 billion “investment.” Pretty impressive if you leave it devoid of context, as the Post and Journal both do. As Baker points out, this gain pales in comparison to what the government handed to investors and executives (emphasis mine):

On November 23, 2008, the government bought $20 billion in preferred shares in Citigroup. It also received another $7 billion in preferred shares in exchange for guarantees on $300 billion in bad assets. At the time, the combined value of the investment in preferred shares and the guarantee on bad assets exceeded the full market value of Citigroup stock on November 21st, the last trading day prior to the deal. In other words, for the same financial commitment that the government made on that day, it could have owned Citigroup outright.

The government subsequently held onto to its preferred shares until Citigroup’s stock had nearly tripled in value. In September of last year it traded its preferred shares for common shares that were priced at a level that only give the government a 27 percent stake in Citigroup.

Baker calculates that this government generosity left some $90 billion on the table at today’s Citi market capitalization.

So, while the Post asserts that the government’s Citi sale would be “a validation of the rescue plan adopted by government officials during the height of the financial panic,” it actually does no such thing. Instead, it shows yet again how government deployed its resources to benefit banks and bankers over taxpayers. That money could (not to mention should) have recapitalized Citi while giving taxpayers the bulk of the company’s shares. Instead it recapitalized Citi in exchange for a sliver of them.

That’s a raw deal.

But another problem we see all too often in press coverage is its failure to account for the true scope of the government bailouts. Neither the Journal nor the Post does that here. Baker does a great job running this stuff down:

It is also worth noting that the government has supported Citigroup through other mechanisms. The Fed created various special lending facilities that allowed Citigroup to borrow money from the government at extremely low interest rates. Since one of the main uses of this money was buying government bonds, Citigroup was essentially getting free money from the government. If it borrowed $200 billion at near zero interest and lent it back to the government by buying 10-year Treasury bonds at 3.7 percent interest, then the government was effectively handing Citigroup $7.4 billion a year for nothing. This money is not deducted from the Post’s estimate of the government’s “profit” on its dealings with Citigroup…

Fannie and Freddie lose money when they pay too much to banks to buy mortgages. It is likely that Citigroup was one of the banks that Fannie and Freddie overpaid for mortgages. Similarly, the FHA loses money when it guarantees mortgages without charging a high enough insurance fee. It is likely that many of the mortgages that the FHA guaranteed, which went bad, were issued by Citigroup.

And that’s not all the subsidies banks like Citigroup have gotten, as Baker further points out.

The Journal gives its readers zero context on the bailout and why it might not be so great, implying that it’s a score for Team USA:

If that price level holds up, it would be the largest U.S. profit on any such TARP investment, exceeding $4.27 billion on dividends and sale proceeds from preferred stock and warrants in Bank of America Corp., according to Linus Wilson, a finance professor at University of Louisiana at Lafayette.

That doesn’t cut it.

UPDATE: The Times does no better.


Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.