Morning Brief: Et tu, Citigroup?

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Little over a week after U.S. Treasury Secretary Henry Paulson said he believed the financial system had been “stabilized,” the U.S. government announced another potentially massive bailout. This weekend, U.S. government officials raced to create a rescue package for Citigroup, one of the world’s largest financial services firms with some $2 trillion in assets and branches in 107 countries. The company’s stock had suddenly plunged to $3.77 in trading last week.

Under the complex — even radical — terms of the agreement (pdf), announced Sunday night, the government agreed to absorb most of the bank’s losses if they extend beyond a further $29 billion. Those losses might eventually reach into the hundreds of billions. The government also agree to invest $20 billion in Citigroup in exchange for an equity stake.

For better or worse, this rescue could be a watershed moment for the financial crisis. “If the government’s rescue plan is a success, it could help bring stability to the entire financial system,” according to the Wall Street Journal. “If it doesn’t, even deeper doubts about the industry’s future could spread.”

Meanwhile, Treasury Secretary Henry Paulson is said to be considering tapping the remaining $350 billion in congressionally approved bailout funds and possibly even designing a new program to address foreclosures. And Democrats are now talking about a stimulus plan that could be as big as $700 billion. Obama aides tell the Wall Street Journal it will be bigger than $500 billion.

Olivier Blanchard, the IMF’s chief economist, warns that “the worst is yet to come.”

U.S. Presidential Transition

President-elect Barack Obama announced his new White House press team.

Several of Obama’s potential appointees are protégés of Brent Scowcroft, the national security advisor for George H.W. Bush.

Jackie Calmes profiles Obama’s top economic advisors and their ties to former Treasury Secretary Robert Rubin.

Americas

Opponents of Venezuelan President Hugo Chavez made small gains in regional elections.

Former Sandinistas are proving to be the harshest critics of Nicaraguan President Daniel Ortega.

Asia

Protesters in Thailand are launching a “final battle” to overthrow the government.

Pakistan’s president is making increasing bold diplomatic gestures toward India, roiling the military establishment.

North Korea announced it is halting rail service to the south.

The title of the new Guns & Roses album, Chinese Democracy, is causing problems for Chinese fans of the band.

Middle East and Africa

Bombing attacks killed at least 18 people in Baghdad.

If passed, Iraq’s troop deal with the United States would give PM Nuri al-Maliki expanded powers.

A leaked Israeli defense paper argues for a peace deal with Syria and the prevention of Palestinian elections.

Europe

Russian FM Sergey Lavrov accused Georgia of fabricating a shooting attack on its president and the president of Poland.

Segolene Royal has been ousted as the leader of the French Socialist Party.

Business is dropping precipitously in French cafés.

Today’s Agenda

President Bush meets with outgoing Israeli PM Ehud Olmert at the White House.

President-elect Obama formally announces his economic team.

A federal appeals court judge hears arguments on 17 Guantanamo detainees.

Some Internet security analysts believe today will be “Black Monday” for cybercrime.

Photo: EMMANUEL DUNAND/AFP/Getty Images