From the Wall Street Journal Online:

Until recently, Citigroup Chief Executive Vikram Pandit had repeatedly backed the company's "universal bank" model. But with directors and executives now bracing for a fourth-quarter operating loss of at least $10 billion and federal officials worried about previous turnaround efforts, Citigroup has decided that more dramatic action is needed, according to people familiar with the matter.

Shrinking Citigroup won't be quick or easy. The company is assigning management teams to handle the gradual disposal of units and other assets, but a person familiar with the matter emphasized that Citigroup doesn't plan to engage in a "fire sale." Efforts to find buyers also will be complicated by rocky market conditions and the recession.

Citigroup already has pursued some pieces of its downsizing push. For example, executives have been trying for months to reduce its exposure to Japan, where rising defaults are hurting profits. Citigroup also has been searching for about a year to find a buyer for Primerica, which sells mutual funds, insurance and other financial products.

That auction hasn't resulted in a sale because of a scarcity of buyers willing to pay what Citigroup regards as a reasonable price, according to people familiar with the matter. 

As part of the new plan, Citigroup executives are considering the possibility of creating what is known as a "good bank-bad bank" structure, these people said. Under that structure, Citigroup would create a new corporate entity to house what it regards as its core businesses.

The "bad bank" would hold around $700 billion in assets, with the remaining $1.1 trillion considered core. The entity would face accounting-related complications, and Citigroup hasn't settled on the approach, people familiar with the discussions said.

It is hard to articulate the contempt I have for the Treasury surrounding their handling of the Citigroup situation. Is it any surprise we (the US Taxpayer, that is) now find ourselves in this position? You can't blame Vikram, Win and the stellar board for sitting back and letting the Government throw money at them in a panic without addressing the core issues at hand: namely, erosion of both on- and off-balance sheet asset values together with difficulty in funding these assets.

What if, just what if, Treasury (together with the SEC) had said four months ago - game over, guys. Employ FAS 157 across your asset portfolios, show us exactly how broke you are, hand us the keys, we'll settle accounts with those who are owed money and say too bad to those who aren't (common stockholders and unsecured debtholders), sell of the good assets and warehouse the bad at marked-down levels. The Government could have worked out illiquid derivatives positions over time without causing a market cataclysm. Oh, and Management and the Board, don't let the doorknob hit you in the butt on your way out. You'll be hearing from a few lawyers any day now. These decisive actions would have saved taxpayers tens if not hundreds of billions of dollars, yet we still have the good ol' Citi management at the helm steering the ship. It's almost like the Madoff situation; he's dead, yet somehow he's still sending millions jewelry to his friends and family. He should be in the clink. And Citigroup Management should be on the street.

Why is legacy Management getting to decide how and when to dispose of assets on our dime? The firm is bankruput save for Treasury's largesse. Someone needs to say game over - now - that has the best interests of the US Taxpayers and the financial markets in mind. Because up to this point, it is not clear that anyone has been looking out for these two key constituencies.