Academic

The Citi bailout may be a sign that the Fed is tiring of taking the lead on these sorts of deals.  No money from its discount window (which Citi already has access to, but, you know) unless absolutely necessary (the term is "Federal Reserve funds remaining pool of assets with a non-recourse loan, subject to the institution?s 10% loss sharing, at a floating rate of OIS plus 300bp," that loan is available after Citi goes through its FDIC and Treasury guarantees), and the first bit of insurance of the toxic assets comes from the FDIC.  That's after Citi, as in its scotched Wachovia deal, takes the hit on the first $29 billion.  That latter agency in exchange gets Citi participation in its mortgage program - maybe a big thing, if the FDIC is right that securitized mortgages are not so difficult to modify.

Here's the statement, here's the term sheet.  Note the new addition of mission statement style bullet points at the end of the announcement; it's good to know that the bailout team has a four part vision:

The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program. 

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

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

• We will work to support a healthy resumption of credit flows to households and businesses.
• We will exercise prudent stewardship of taxpayer resources.
• We will carefully circumscribe the involvement of government in the financial sector.
• We will bolster the efforts of financial institutions to attract private capital