Treasury considered plan to bust Citi shorts

The government has gotten way too involved in our markets. The Plunge Protection Team (PPT) also known has the President's Working Group appears to have been working overtime.

(FT.com) US regulators considered a proposal to buy Citigroup shares in the secondary market before deciding on a plan to buttress the bank with $20 billion in fresh capital and $306 billion in guarantees for distressed assets, people involved in the talks said.

Under the plan revealed on Sunday, the Treasury will invest $20 billion in preferred shares in Citi -- in addition to the $25 billion it has already put into the group.

However, regulators briefly considered investing as much as $30 billion in Citi -- including $15 billion in preferred shares and $15 billion in common stock to be bought in the secondary market, participants in the talks said.

By buying Citi common stock in the open market, regulators could have increased pressure on investors who sold Citi shares short -- selling borrowed shares in the hopes of buying them back to profit from a fall in the price. The Hong Kong Monetary Authority employed a similar strategy during the Asian financial crisis.

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