It’s a lot more than just 375 million per year. The U.S. debt is like 9174 billions and increases 1.52 billion per day.

I had a long talk with my sister on this blog entry (she studied at LSE) because sometimes I don’t come across well when I explain things.

This actually has nothing to do with an Arab state investing in another country. As my sister said, this not about the emotions of what most people are writing about in the papers, and the article that you referenced. In my previous comment I was replying to the article and that I don’t buy that argument in the article. My point and the article are two orthogonal points.

But that is digressing from the point that I am trying to make.

The tax deductibility, that you say is a minor point is actually the entire point. It illustrates how corporations have become warped. Citi needs money and they offered to sell their stock at a cheap discount. The buyer happened to be Arab and actually I don’t care about that. Buying Citi stock at these prices is probably getting a good deal.

But to make the deal work Citi sold a coupon at 11%, which is in excess of the what bond market offers. Think of what this means, a favored investor gets a cheap stock and 11%. I would like that deal as well. Heck I would invest in Citi tomorrow and so would oodles of other companies.

Under normal circumstances this would be a bad deal because it is favoring one fund over another, and it adds an unnecessary burden on the company. But here is the clincher, it is a good deal because Citi can write off the 11% coupon. Citi has very little additional burden and they get the money to keep perpetuating bad deals.

Now let’s do the math. The fund gets 11%, Citi might only have to pay 6% of that 11%, which leaves 5% for somebody to foot. Put into the context of 7.5 billion that is 375 million per year that the American tax payer has to give. That 375 is not just 375 because most likely there is going to be some debt financing involved by the government. Thus that debt will grow over the years. That money could be invested in schools, or health care, or social security. BUT no, it is going to a financial fund!

The 11% coupon should never have happened and it should never have been tax deductible. And if it weren’t I bet you Citi would not have done that. But yet they did! I don’t actually care that a bunch of Arabs bought into Citi. What bothers me is that a bad deal with loan shark like conditions was made because they could write it off. That’s warped!

And why are you bringing up “freedom”? I accept that you may not be from the states, but you seem to be using this word as certain parties do over there; as some all-encompassing term that represents the shining good of this world, insinuating that there is a lot of anti-freedom in the world that needs sorting out. Given that the present government invades countries under the pretense of installing freedom, it may be worth qualifying your statement.

Freedom of what? Freedom for who? Freedom for one political state to invest in assets registered in another? I don’t see that particular freedom (or indeed any others) being infringed.

This is all irrelevant anyhow; your suggestion was that Americans are getting duped. Large sums of capital being pumped into one of the worst suffering organisations of the US mid-crisis economy is going to hurt. Tax deductibility is a minor point - most forms of debt follow the same rule, and this is an expensive funding package for Citi either way. Perhaps they’re just clutching at straws.

I looked at your article, and read it. Do I agree with it? No…

I feel that we in the West have been using too much oil and need to kick our oil habits. There are solutions, but we need to kick our governments to using these solutions.

What I find interesting is that you consider that I have patriot blinkers on. I personally feel that politics and economics are intertwined. And if we give up our core beliefs for a bit of economic gain then our society has a serious problem. For example one of my core beliefs is freedom!

Read this article, I fear you have your patriot blinkers on. This might give you the insight you were looking for.

http://www.ft.com/cms/s/0/775630c2-9dd7-11dc-9f68-0000779fd2ac.html

Anyway, it’s a free world of cyclical markets. The US has enjoyed the benefits of a fatted, rich economy for a long while now. The roundabout continues to turn, and it looks like the westernised Middle Eastern nations (UAE, Qatar, Bahrain) will be filling in the gap. It could just as easily have been any other emerging market based fund making this move, and don’t forget that the board of Citi have approved it all the way, nobody’s getting raped here.