In 2008, Bailouts for Everyone! Fannie Mae, Freddie Mac, AIG Insurance, TARP, etc., But Mainly for Citigroup (Again!)

Many Americans may remember the fall of 2008 as a chaotic and frightening series of teetering dominoes—huge financial firms that had bet too much on the housing market. Many Americans may also recall experiencing a tremendous anger as the government rescued one stumbling giant after another. In September, Washington bailed out the government-created mortgage investors Fannie Mae and Freddie Mac. Then the feds rescued the insurance titan AIG, effectively a bailout of all the Wall Street firms to which AIG owed money. Among the great financial houses, only Lehman Brothers was allowed to fail.

But the Lehman moment of market discipline didn’t last long. The government then came to the rescue of money market mutual funds and issuers of commercial paper. By early October, President George W. Bush had signed the Emergency Economic Stabilization Act into law, creating the $700 billion Troubled Asset Relief Program. Roughly ten days later, financial regulators began spending this pot of rescue money, announcing direct investments in America’s largest banks. But was there one bank in particular that had regulators scared enough to engage in such radical interventions in the economy?

In the fall of 2008, few people in America had access to more information about the health of American financial institutions than FDIC chairman Sheila Bair. Four years later, she looked back on that season of crisis and wrote: “I frequently wonder whether, if Citi had not been in trouble, we would have had those massive bailout programs. So many decisions were made through the prism of that one institution’s needs.”

—James Freeman and Vern McKinley, Borrowed Time: Two Centuries of Booms, Busts and Bailouts at Citi (New York: HarperCollins, 2018), e-book.