Proving that there’s no time like the present to throw good money after bad, the government managed to get the Treasury, FDIC, and the Fed to all sink money into Citigroup. Bloomberg has the story, Citigroup Gets Guarantees on $306 Billion of Assets:

Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week.

Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend. Citigroup rose 53 percent to $5.75 at 8:37 a.m. in New York trading today.

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and help restore economic growth. The decision came after New York-based Citigroup’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.

The deal is structured in such a way that Citi takes the first set of losses, then 10% of the remaining amount, up to the guarantee limit:

Terms of the asset guarantees mean Citigroup will cover the first $29 billion of pretax losses from the $306 billion pool, in addition to any reserves it already has set aside. After that, the government covers 90 percent of the losses, with Citigroup covering the rest from assets, including residential and commercial mortgages, leveraged loans and so-called structured investment vehicles.

The real humor comes in a part with the slapstick subtitle “Protect Taxpayers” (emphasis added):

The government’s preferred shares come with warrants to buy 254 million Citigroup shares at $10.61 each, allowing taxpayers to profit if the stock rallies following the government’s investment, according to a term sheet that accompanied the agencies’ statement. Citigroup is required to pay a quarterly dividend of no more than 1 cent a share for the next three years, down from 16 cents in the most recent quarter.

“With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers,” the agencies said.

Citigroup Chief Executive Officer Vikram S. Pandit said the agreement addresses “market confidence and the recent decline in Citi’s stock,” and also strengthens the bank’s “capital ratios.” The company said its so-called Tier 1 capital ratio exceeds 9 percent with the support from the government.

$10.61? Perhaps nobody looked at the ticker, but Citi’s stock was under $4. Saying that the taxpayer can profit from a rally is a bit misleading. The government injected an amount of money greater than Citigroup’s market cap, backstopped over ten times that amount, in exchange for a stake in Citi that turns a “profit” when the stock rises by a factor of three. Well, now we have a pretty good idea of what the government means by protecting the taxpayer.

I also wanted to point out some more crazy-talk: Citi was claiming that short sellers were causing the stock price to plunge. Citi has a short ratio of around 3%. Cal-Maine, egg producer extraordinaire, has a short ratio of 36%.

This is disgusting.