First, I read in the NYT that "Google Unplugs Lively as Hype Fades Over Virtual Worlds." According to the article, "Google announced that its Lively experiment will shut down at the end of the year. The Web-based portal to all things virtual only started in July, making this one of Google’s shorter experiments."
I personally could not quite comprehend the value proposition of Second Life to businesses, though it could hold attraction (like anything else in the Universe) to some individuals.
On the other hand, BushObama and team dropped a lifeline to Citicorp. If Citi pulls too hard, it will take taxpayers down into a deep dark hole. Some details of this OPM addiction, i.e. a gargantuan spending of other people's money: (info from the NYT- thanks for providing the world a great newspaper)
- Citi gets $20 billion in cash immediately, in addition to the $25 billion it had already received under TARP.
- $306 billion of Citi’s toxic assets are being guaranteed, with the Treasury taking the first $5 billion of losses, the F.D.I.C. the next $10 billion and the Fed the remainder. All of this is subject to a loss-sharing agreement where 10 percent of the losses are paid by Citi. The Fed is charging an interest rate on its own loan at the rate of the Overnight Swap Index plus 300 basis points.
- The government is also getting $27 billion in preferred shares in Citigroup. This preferred bars the paying of dividends above 1 cent per share for three years and has a higher rate of 8 percent from the get-go (unlike the other preferred shares, which pay 5 percent for the first five years).
- Finally, the Treasury is getting $2.7 billion in warrants but pricing them on a 20-day moving average, so the strike price is $10.61 per share. (Citi on Monday was trading at more than $6 a share and closed at $3.78 on Friday).Of course the warrants are under water and it does not appear plausible that they will be worth anything anytime soon. It is like my options in my former employer, which were priced at $85 and the stock is trading at $4 or thereabouts. It would be interesting to see if the government itself would ask for repricing of warrants if they end up being worthless.
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According to the NYT, the Treasury is only taking 10 percent of the total preferred being issued in warrants, as opposed to 15 percent in prior transactions.
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Ipso facto, the BusHankObama group has been tough on executive compensation. "The only requirement in the term sheet is that “[a]n executive compensation plan, including bonuses, that rewards long-term performance and profitability, with appropriate limitations, must be submitted to, and approved by, the USG.” Compare this to the requirements the government put forth under its EESA rules for a systemically significant failing institution. These requirements are stricter and require a ”prohibition on the financial institution from making any golden parachute payment” to any senior executive officer. It remains to be seen how the government classifies this bailout, but it will be interesting to see if Citi and its chief executive, Vikram Pandit, are put in this mix by the government imposing these stricter limits. Citi certainly qualified under these rules as such a systemically significant failing institution. From the term sheet of the Citi deal, though, it looks as if the government will not qualify Citi as one. But the government should, if only for consistency’s sake. Citi was bailed out because it was failing, after all. Of course, the executive compensation question for poor Mr. Pandit is small beer: if anyone should have their compensation clawed back, it is Citi’s former chief, Charles Prince." (NYT)
As my favorite comic Dave Allen used to say in Dave Allen at Large: 'May your God go with you.'
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