Saturday, December 01, 2007

Citigroup is Toast

Several banks are forming a consortium to make a market for SIVs. Citigroup holds about 100 billion dollars worth. Coincidently this is about the amount this group is going to raise. These instruments are a little like intestinal gas. It reminds me of the two immigrants, new to the US, taking notice of several balloons tied to an outhouse door. The one remarks to the other, “I’ve heard them, and smelled them, but this is the first time I have seen one!”

To keep the discussion polite, Citi/Shiti has some balloons for sale. They are rated as Chiti. I know we haven’t lost the short bus group, they all know the “Pull my finger drill.”

Needless to say, where does the 100 billion come from to make the SIVs fungible? The answer is so obvious that it boggles the mind, BAT GUANO FUTURES (Just Kidding). But the people out there that everyone is listening to, expecting a solution from, are part of a certified circus act.

Let’s see, you are a bank and you lost 100 billion dollars. The total cost to tax payers for the S & L fiasco of the 1990’s was only 125 billion. We have one bank with a very bad cough and more obligations on debt than the previous banking brouhaha in total.

What’s a 100 billion? The answer depends on who you ask. The one question not asked, is what bank can survive a 100 billion dollar loss? In my opinion, none. Citigroup is toast.


Cranky said...

Has anyone tallied all of the losses to date? You hear these figures all the time, billions here, 100 billion there. I’m sure it would be a pain in the rump to do, with all the shell games going on right now. I’m also curious to who will be screaming into their pillow… the investors or the tax payers?

gordon said...

Hi Jim. Great post, thanks.
In a comment below you mention gold as having to enter the equation. I presume you mean as a stabilizer of international currencies and not as a personal investment : or do you ?
As for Citi, I knew they were suspect when they offered me 20K at 1% for a year just in the hope that I would fall behind with my payments. Hardly traditional conservative banking.

Jim in San Marcos said...

Hi Gordon

You are right I wasn't suggesting it as a personal "investment." Gold is a lousy investment, it is a store of value.

There has to be some universal measure of each currency that retains its value over time for trading between countries. In this sort of system, each country could do what it wants with a printing press. Gold Silver and Platinum fit the bill, you can't print more of them.

The concept of not being able to print more, keeps your elected officials from promising more than they can pay for (like Hillary and Universal Health Care).

This would be a solution for international commerce. It would be nice if each country went to a gold backed currency, but that is impossible. Once you choose to jump off of that wagon, you can't get back on.

In order to get the system to function, it leads one to conclude that private ownership of gold would be have to be banned (again).

Jim in San Marcos said...

Hi Cranky

If you go back to my Nov 17 post on Deutsche Bank the second visual aid shows about 200 billion held by US banks.

Europe held about 50 billion. I was disappointed that Asia was not listed in that report. That part of the world is running all sorts of "shell games."

I'm sure someone has the info, it just hasn't floated to the surface yet.

Strategic Investor said...


great post - but a bit overstating the case.

Citi will not lose the entire $100bn. After all, the SIV "superfund" which is dead anyway, expected to purchase the assets, at a discount, sure, and then wait out the payments to come in.

But, admittedly, they will take a beating and they may be nearly toast. I think they will still be able to raise enough equity to keep operating, though.

The bond insurers, however, are another story.