Citigroup Inc. (C) is lifting the curtain on the $45 billion in taxpayer capital it received, saying it plans to use $36.5 billion to fund U.S. mortgage loans and assist credit card holders and businesses.

In the first of four quarterly reports, Citigroup said the money it received from the U.S. Treasury’s Troubled Asset Relief Program (TARP) will not fund advertising, marketing, lobbying, compensation and bonuses. Nor will it used to pay the company’s dividend.

Citigroup also said it created a special committee that will approve and track how the company uses TARP money.

As of the fourth quarter of 2008, the $36.5 billion has been approved for these initiatives:

• $25.7 billion for U.S. residential mortgages
• $5.8 billion for credit card lending
• $2.5 for personal and business loans
• $1.5 billion for commercial loan securitization
• $1 billion in originating student loans through the Federal Family Education Loan Program

Citigroup has three goals with TARP capital: To help expand available credit for consumers and businesses; restore liquidity and stability to the capital markets; and support the recovery of the U.S. economy.

“Americans from all walks of life are facing real economic hardship, and Citi must do whatever we can to help them. Our responsibility is to put TARP capital to work quickly, prudently, and transparently to support U.S. consumers, businesses and our communities during these challenging times,” Citi Chief Executive Officer Vikram Pandit said in the report. 

Since receiving TARP money, many U.S. banks have been mum on their plans to spend it, spurring heavy criticism from government officials, investors and the media, including Money Morning’s investigative series on TARP transparency.

Money Morning’s ongoing investigation demonstrated that billions in U.S. bank rescue funds are financing buyouts worldwide – instead of lending at home. Some of those buyouts deals are being done in markets as far away as China. Meanwhile, credit remains tight here in the U.S. market, a situation that could be alleviated only if the banks made the bailout money available to consumers in the form of loans.

Citigroup’s report – and promise of another for each quarter – takes a lot of pressure off Pandit and the rest of the company’s board. And hopefully, it will put pressure on other TARP benefactors to prove they are putting it to good use.

In its latest investigative offering, The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings? And what’s the plan for the rest?
According to The AP, none of the banks provided specific answers. Some banks actually admitted that they simply didn’t know where the money was going.

News and Related Story Links:

• Citigroup:
  Citi Issues First Quarterly Progress Report on Its Use of Tarp Capital

• Money Morning Investigative Report on the Bank Bailouts (Part V):
  U.S. Banks Refuse to Detail How They’re Spending Federal Bailout Money.

• Money Morning Investigative Report on the Bank Bailouts (Part IV):
  Banks That Got $188 Billion in Bailout Money This Year Paid Out $1.6 Billion to Top Execs Last Year.

• Money Morning Investigative Report on the Bank Bailouts (Part III):
  Billions in U.S. Bank Rescue Funds are Fueling Buyouts Worldwide – Instead of Lending at Home.

• Money Morning Investigative Report on the Bank Bailouts (Part II):
  Billions in Bank Rescue Funds are Fueling Buyout Deals, and not the Increase in Loans That Would Help Ease the Financial Crisis.

• Money Morning Investigative Report on the Bank Bailouts (Part I):
  Foreign Bondholders – and not the U.S. Mortgage Market – Drove the Fannie/Freddie Bailout.

The U.S. Senate plans to vote tonight (Wednesday) on a $700 billion banking-bailout plan, using an increase in bank-deposit-insurance limits and tax breaks for consumers and businesses as devices to win support from the Republicans who sent a House bill down to defeat on Monday.

With its evening bailout vote, the Senate is widely expected to pass the bill – with broad-based backing from Democrats and Republicans alike. Insiders also expect the House will back the new bill, thanks to a swing in voter sentiment and pressure from foreign governments and central banks to restore public confidence in the U.S. banking system.

All last week, through last weekend and even up into Monday, Congressional representatives have received a flood of phone calls, e-mails and faxes from livid voters who resented the fact that Wall Street was going to get a taxpayer-financed bailout for a problem that these financial institutions had actually caused.

But that sentiment shifted quickly after the House of Representatives bailout vote on Monday, in which that chamber’s lawmakers rejected the financing proposal and left the country with no immediate alternative. The uncertainty that created spilled over in the U.S. stock market, with the Dow Jones Industrial Average enduring its worst one-day point drop ever – a plunge of nearly 778 points that left investors both dazed – and scared.

“More than $1 trillion worth of market value was wiped off the books by the stock market drop,” U.S. Sen. Robert Bennett, R-Utah, told Bloomberg News. “It is ordinary people looking at ordinary pensions, with their ordinary Main Street kind of 401(k) plans, who lost that $1 trillion. And they lost it in a matter of minutes.”

Stocks soared yesterday (Tuesday) – with the Dow gaining 485 points in posting its third-biggest point gain ever – as investors regained confidence that Washington would bring a new plan back to the table for consideration. The Senate announced last night that it would be bringing a new measure to vote tonight.

To boost the odds of success with its own bailout vote, the Senate is including measures that are almost certain to resonate with both voters and lawmakers – especially lawmakers focused on the upcoming election. Key new measures in the Senate bailout bill include:

• An increase in the Federal Deposit Insurance Corp. (FDIC) deposit-insurance cap, from the current $100,000 to the new level of $250,000.

• A one-year “patch,” or relief from the alternative minimum tax, or AMT, which is expected to save about 24 million households a combined $62 billion.

• Optional insurance for mortgage-backed securities, with financial institutions paying premiums.

• A “Mental Health Parity” provision that provides insurance for mental illness.

• Roughly $17 billion in tax credits for the development of renewable energy such as wind and solar power.

• An extension of tax breaks that would save individuals and corporations roughly $150 billion over the next 10 years, as well as tax breaks for those impacted by natural disasters.

Both Republican presidential nominee John McCain and Democratic rival Barack Obama endorsed the FDIC change, The Boston Globe reported. Both presidential candidates had proposed such a change be part of any bailout plan, and both were planning to return to Washington for tonight’s vote, their aides said.

Indeed, billionaire and hedge-fund manager T. Boone Pickens believes in the bailout, but has been saying all week that Congress had to make an increase in the FDIC-insurance levels part of any proposal, The Detroit Free Press reported in its online edition, freep.com.

“People have to know they are not going to lose money if they have it in banks,” Pickens told the Free Press earlier this week. “We need to bump that up.”
Pickens was in Ann Arbor today to talk about his energy plan, and spoke to the Detroit newspaper in advance of that visit. He said the bailout absolutely has to be done.

The Senate agreed to vote on the legislation along with the measure temporarily raising the limit on federal deposit insurance to $250,000 from $100,000. That increase was proposed by Republicans critical of the original compromise plan that authorized U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. to buy troubled debt from lenders.

The House rejected that plan on Monday. Two-thirds of House Republicans and 40% of Democrats defeated the bailout plan on a 228-205 vote. At the time, President George W. Bush and Senate leaders vowed to bring a new version of the pact up for a vote later in the week.

Many observers say that passage of the bill by the Senate will induce House members to take a very serious new look at the bill. A dozen ‘No’ votes would need to be changed to ‘Aye’ votes for the rescue legislation to pass in the House, Bloomberg reported.

Pressure is mounting from overseas, too. European Central Bank President Jean-Claude Trichet said U.S. lawmakers must pass the measure to shore up confidence in the global financial system. European governments have helped rescue at least five banks since Sept. 28, with Trichet taking part in talks to save Belgium’s Fortis NV over the weekend.

“It has to go, for the sake of the U.S. and for the sake of global finance,” Trichet told Bloomberg Television in an interview from Frankfurt late yesterday. “I am confident, but of course it is the decision of the U.S. Congress.”

News and Related Story Links:

• Political Intelligence:
  
  Senate plans bailout vote on Wednesday.

• The Wall Street Journal:
  
  Raising FDIC Savings Cap to $250,000 Gains Support.

• Freep.com:
  
  Pickens: Bolster FDIC protection as part of revised bailout plan.

• Wikipedia:
  
  Alternative Minimum Tax.

• Bloomberg News:
  Senate Sets Bailout Vote, Boost to Deposit Insurance.

• Money Morning Market Analysis:
  
  Credit Crisis Update: U.S. Stocks Notch Record Gains on Investor Hopes for a New Bailout Plan.

• Money Morning Market Analysis:
  
  Surprise Rejection of Bailout Deal Causes Record Decline in U.S. Stocks, Paves the Way for a Better Accord.

• Money Morning Analysis:
  
  Wind Power: Pickens Lobbies, While China Acts

• Money Morning Market Analysis:
  Credit Crisis Update: Foreign Stocks Dive Monday on Trio of European Bank Bailouts.

A year ago, a share of The Bear Stearns Cos. Inc. (BSC) would have cost you $150.

Yesterday, the shares closed at $11.26 – and that’s after they soared 90% from the opening bell price on news that JPMorgan Chase & Co. (JPM) had boosted its bid.

The "why" has already been discussed, but no one seems to be concerned about the "how" right now, particularly where white knight JPMorgan and the U.S. Federal Reserve are concerned.

On the surface, this tie-up is being billed as a bailout to avert another crisis on Wall Street. However, upon closer examination I think it’s more evidence that the Fed suffers from "attention to deficits disorder."

I put this very question to Jim Rogers during an exclusive interview last Saturday in Singapore.

Mr. Rogers stated: "I’ve read the Federal Reserve Act. Nowhere in it does it say you’re supposed to bail out Wall Street. Their mandate was to have a sound currency and it was later expanded to help employment. But nowhere does it say you’re supposed to bail out investment banks."

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Then, as Rogers is well noted for doing, he put it more bluntly: "You don’t see a bunch of 29-year old cotton farmers driving around in Maseratis and flying in private planes to exotic places."

He continued, "You see a lot of guys on Wall Street doing that and the idea that we’re supposed to bail them out is ludicrous. I don’t see any of those guys sending their bonus checks back. Huge amounts of money were made in the debt market we know now incorrectly, if not fraudulently… and now we’re supposed to bail them out?"

"It’s insanity," Rogers said.

(I’ll have Mr. Roger’s complete comments on this and a number of related global investing topics in an upcoming installment series so stay tuned.)

Here at Money Morning, we couldn’t agree more with Mr. Rogers, which is why we think all is not what it seems with the Bear Stearns/JPMorgan deal, any more than we did with the Bank of America Corp.’s (BAC) buyout of troubled mortgage lender Countrywide Financial Corp. (CFC).

So, let’s tally up the winners and the losers.

JPMorgan didn’t get Bear for the original paltry $236 million offer, but $1 billion isn’t bad. Especially when you consider JPMorgan will get complete access to Bear’s operations, including the legendary prime brokerage and clearing operations, which are regarded as crown jewels. JPMorgan will also get Bear’s brand spanking new Madison Avenue office tower that could be valued north of $1 billion on its own.

Meanwhile, as part of the deal the Fed ponies up another $30 billion to guarantee Bear’s more "illiquid assets" (read: toxic sludge) – so JPMorgan doesn’t have to trouble itself with actually running a failing business.

Which begs the question: Why can’t somebody do that for millions of Americans who are having trouble making ends meet right now as a result of all this?

The bottom line is that there’s nothing "Federal" about this crisis today any more than there was a year ago when we began sounding the alarm bells and taking a more defensive posture.

Even though it’s being spun as a good thing, by stepping into the fray yet again, the Fed is involuntarily forcing you and me and every other taxpayer to act as guarantors.

And then there are the insiders.

The former CEO Mismanagement Club, including members Chuck Prince, Stanley O’Neil and Angelo Mozilo are walking away with hundreds of millions, after almost single-handedly destroying an entire industry and perhaps even wrecking our economy in the process.

And what about the timing?

The Fed – Bear Stearns – JPMorgan triad came together literally over the weekend. And you don’t just crank out a deal like that overnight, no matter what anybody says about burning the "midnight oil."

There are many who will argue that saving Bear Stearns staves off a wave of defaults from other interconnected borrowers and lenders. That it somehow gives the system "breathing room to pay off Bear’s debts gradually" as Business Week’s Matthew Goldstein so eloquently put it.

I’ll concede that it might… if we are really lucky.

My concern, however, is that the cost of trying to prevent a recession will ultimately cost us more than simply enduring one.

News and Related Story Links:

• Money Morning:
  JPMorgan Raises Bear Stearns Bid

• Money Morning:
  Bank of America Will Buy Countrywide for $4 Billion in Stock