Citigroup's Derivatives Reduce Bailout to a Non-Event 51 comments
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Responding to a rhetorical “What does a bank do?” question at a Town Hall meeting last November, Citigroup (C) CEO Vikram Pandit explained that “a bank takes deposits and puts them to work by investing and making loans.” But the phenomenal exposure to derivatives on Citigroup’s books has nothing whatsoever to do with either taking deposits or making loans. As of June 30, 2008, the notional value of Citigroup’s derivative contracts exceeded a whopping $37 trillion; the ultimate fate of those contracts far outweighs the positives detailed in the Town Hall presentation.
Barely a week after Mr. Pandit’s assertion that a leaner and meaner bank was firmly on the agenda, the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation were forced to put together a massive rescue plan for Citigroup. So certain key components of the slide show which formed the basis of his presentation (available on Citigroup’s website) are now either hopelessly outdated or simply irrelevant. But given that 95% of Citigroup’s derivative contracts are grounded in the over-the-counter market, it is unclear whether those drafting the Citigroup bailout truly grasped the sheer size of the problem.
For that matter, those buying Citigroup’s shares today are also perhaps unaware of the fact that, as of June 2008, Citigroup’s exposure to credit derivatives stood at $3.2 trillion (notional value), and a fair proportion of its swaps (currency and interest rates), forward contracts and options incorporate settlement references to third-world currencies, thus implying a much higher degree of pricing, counterparty and valuation risks than those commonly found in dollar-to-dollar, euro and yen transactions. A detailed analysis of the substantive downside of engagement in illiquid and undeveloped financial markets is beyond the scope of this article; but, most certainly, the rescue plan fails to address the potentially disastrous impact of a crumbling derivatives portfolio in the face of a rapidly deteriorating global economic environment.
Citigroup has raised $50 billion through public and private offerings since the third quarter of 2007. In 2008, the US government invested $45 billion in Citigroup, and guaranteed $306 billion in toxic assets. But the capital inflow and the guarantees have only addressed, in part, loan loss provisions in sub-prime and consumer lending. The risk on the derivatives portfolio appears to have been ignored, perhaps in the hope that the end of the recession, at some point in the foreseeable future, will bring a semblance of mark-to-market rationality to thousands of “off balance sheet” trades concluded with international banks, hedge funds and corporate entities in 70-plus countries.
Those Wall Street analysts who are recommending long-Citigroup positions should bear in mind that derivative contracts originating in the developing world are also at risk of political intervention. Senior finance ministry officials in New Delhi, for example, are considering the cancellation of swaps, futures and option contracts in circumstances where such contracts are adversely affecting (a) exporters of agricultural commodities and manufactured goods and (b) importers of machinery and equipment for use in infrastructure projects. Neither Citigroup nor other significant providers of derivative contracts are hedged for “political risk”. However, for what may prove to be a blessing in disguise, JPMorgan Chase (JPM) and Bank of America (BAC), with total derivative contracts (notional value) of $91 trillion and $40 trillion respectively, never managed to achieve the global reach of Citigroup.
Vikram Pandit’s deposit-to-loan concept runs contrary to everything which Citigroup stood for, thus far. But even if one assumes that Mr. Pandit will be able to convert his concept into reality, the earnings-per-share and capital-adequacy outlook remains dismal. The 30-day high of $8.50 is an excellent short-Citigroup target price. If you are short, stay short. This stock can slide to its November 21, 2008, low of $3 fairly rapidly on the back of bad news, from the global economy or from within Citigroup’s balance sheet.
Disclosure: Author holds short positions in C, JPM
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This article has 51 comments:
regardless of weather they disclose the fact-- its unfair and unethical.
he needs to stick to writing articles on other sectors- this man gains by trying to get citibank lower-
This are mostly swaps (loans) linked to long dated treasuries, so 37 trillion USD are not 37 trillion, this is the amount that they serve, so if 10% of those loans will fail it will wipe out 3.7 trillion $ in like 20-30 years or 123 billion $ a year.Now think about deposits that will be transfered from other banks to C and then think again if it is possible for 10% of loans to fail - of course not as each loan after short period of non performance is called back and banks liquidate remaining assets making their biggest buck on it.
I don't say that there is no risk on the banks balance sheet, there is risk but it is managable risk long term and for now banks get help from the government.In the long run (20-30 years) this crash will lok like an opportunity of a lifetime, but as exact low point to buy bank stocks is not known one must be selective and wait.
I would love to go long anything if DJIA will reach at some time in the future 2000-3000.
All are Whitney/ & Dimon's friend. Where these so-called bloggers/analyst were all these days before September???
Would you prefer that big brother only allowed us to see opinoins from bullish investors? If they own the stock they benefit too. What's so different about a short-seller? When did they become evil people?
He makes some excellent points, but I agree with those who are annoyed that we see notional values denoted as exposure. If that were the case we could reduce all outstanding Credit Derivative notionals to one trillionth of their value by changing the conventions and multiplying the cds spreads by a trillion as an offset. Net reduction in exposure? Zero, but there would be less drama about the perceived size of the positions.
Love the point that banks have neglected to do the business they are here for, and have opted for quick trading gains made while the cds buble and housing values were expanding. They should now face the music and go bankrupt. We can bear the pain and allow those institutions that deliver real value to thrive in their place.
They bet, they lost, and now they want our money to bail them out. Had they won, would they be giving us taxpayers any share? No way.
Bailing these guys out is akin to negotiating with terrorists. Just because they can inflict pain on the world, we can't let that be an excuse to give them whatever they want. Enough already. Let Vikram invest his own money and start his own bank if he thinks he knows how to run one
On Jan 04 11:50 AM joshchn wrote:
> why is someone who is SHORT on citibank allowed to publish an aritcle
> bashing citibank ???
>
> regardless of weather they disclose the fact-- its unfair and unethical.
>
>
> he needs to stick to writing articles on other sectors- this man
> gains by trying to get citibank lower-
On Jan 04 12:07 PM teraflop wrote:
> Notional amounts can be netted under criteria unique to each Citi-counterparty/coun...
> parent relationship for credit purposes. In other words, if you want
> to calculate Notional amounts, you need a grid by counterparty, you
> can't just add them all up. Credit risk is mitigated through collateral
> postings at inception and ongoing collateral agreements, which should
> be included in any determination of outstanding credit risk. Additionally,
> Notional amounts should not be considered when evaluating Delta-one
> or Flow Risk in a portfolio because of netting agreements or outright
> additive nature of equivalent positions - they don't equate to market
> risk. A good article but throwing around Trillions is a good way
> to scare unsophisticated readers and garner attention.
On Jan 04 11:50 AM joshchn wrote:
> why is someone who is SHORT on citibank allowed to publish an aritcle
> bashing citibank ???
>
> regardless of weather they disclose the fact-- its unfair and unethical.
>
>
> he needs to stick to writing articles on other sectors- this man
> gains by trying to get citibank lower-
It could very well be that Citi has mostly those swap instruments on her derivative books. But this does not take away that worldwide there is over 600 trillion in nominal value in the OTC markets and that was bought and sold for about one US GDP (14.5 trillion).
The basic instability problem is as next:
As just a few percent of this 600 trillion has to be paid, money streams like one US GDP have to be there.
After my humble opnion this is a fairy tale world; no institution has a few trillion on the shelfs in case this need to be paid out...
The exhanges will only handle the standard vanilla stuff, and our wiley banker friends will surely continue writing structured OTC transactions when they want to do something without being bothered by those pesky regulators.
Unless the regulators get a clue about how to measure risk, we are sure to repeat the problem that got us here. I think the fed can solve a lot more problems by letting those institutions go into orderly bankruptices than trying to regulate them. You can bet they'd be more adept at managing their own risk if they didn't have the fed (and us taxpayers) here to bail them out when they screw up.
On Jan 04 01:43 PM David White wrote:
> It is becoming quite clear that there needs to be more regulation
> in the banking industry in the area of CDS's. We haven't seen this
> bubble implode yet. However, we are now seeing the very real possibilities
> that such an implosion could mean to the US economy (and world economies).
> It is also clear that banks, especially Citi, have taken much more
> risk than any banking regulator would ever agree to. The reason was
> obviously greed, which caused the risk to be ignored while the economy
> was doing well. The federal bank regulators need to have more stringent
> regulations in this area. This may have fallen through the cracks
> this time. It should not again. The new markets in CDS's by NYX,
> CME, and ICE should help bring more visibility to this area.
On Jan 04 11:42 AM Ishortyou wrote:
> Those derivatives or contracts hedge against trade for profit, should
> be transparent and traded openly in the NYSE or other transparent
> trading platform, they should be fully diclose at to the last term
> in plain language, to avoid future disruptions effects in other markets
> and the global economy. Their secrecy had a supernova explosion effect
> across the financial universe wercking havoc of almost everything.
For example before all those weird investment banks fell; up to 25% of their total balance 'asset value' had to be financed via 24 hour borrowed money.
The working model was as next:
We borrow out money for the long term, this creates high yields.
We finance this (since we have no money for ourselves) with short term borrowed money that is cheap cheap cheap.
In the end 25% of total balances were financed by one day borrowings,
that is 'maturity mismatch'.
It is not very rigid by the way.
3% of 643 Trillion is a boat load of Cash, I don't care who's cash it is, 19+ Trillion cannot be printed nor fixed. Implosion will be the result IMHO.
www.occ.treas.gov/ftp/...
"the rescue plan fails to address the potentially disastrous impact of a crumbling derivatives portfolio in the face of a rapidly deteriorating global economic environment"
+
"Citigroup’s exposure to credit derivatives stood at $3.2 trillion (notional value)"
I do not have a position in Citi (or any other bank), but looked at Citi's CDO exposure earlier last year. The biggest chunk of it, as far as I remember, were super senior tranches (both ABS and corporate). These exposures tend to give you the wild swing in earnings (because of their sheer size), due to FASB 157 rule. Well, when spreads widen, Citi's earnings get a horrid MTM hit because of the exposures.
Watch out when the spreads reverse the course. All this false write-downs will be becoming write ups..
I am thinking to go long UYG.
Why the hell on this earth people want to post such rubbish article when they don't have a clue about derivatives/swaps and how they work. Go and read a little before trying to post such BS. The derivatives may stand at trillions but the net exchange or inter party trade would be only couple of billions. Take Lehman an example.
Folks, this cookie has published similar article in the past. Don't get swayed. Now is the time to go long Citi and JPM.
On Jan 04 11:50 AM joshchn wrote:
> why is someone who is SHORT on citibank allowed to publish an aritcle
> bashing citibank ???
>
> regardless of weather they disclose the fact-- its unfair and unethical.
>
>
> he needs to stick to writing articles on other sectors- this man
> gains by trying to get citibank lower-
On Jan 04 07:45 PM samrock001 wrote:
> Looks like you are the same cookie who had short position in C/GS/JPM
> and published a similar article last week. Now, with this article
> it seems you have covered your short position on GS. Good job else
> you would have your a** blown away. You still have short position
> in C and JPM. Similar to my advice last time with respect to GS,
> cover your short positions in C and JPM before Jan 15. Else you know
> what I am talking about.
>
> Why the hell on this earth people want to post such rubbish article
> when they don't have a clue about derivatives/swaps and how they
> work. Go and read a little before trying to post such BS. The derivatives
> may stand at trillions but the net exchange or inter party trade
> would be only couple of billions. Take Lehman an example.
>
> Folks, this cookie has published similar article in the past. Don't
> get swayed. Now is the time to go long Citi and JPM.
Berkshire Hathaway also has about $10 billion worth of credit default swaps as pure liabilities, but Buffett has almost $30 billion in cash, and he got $4 billion premium for selling $10 billion of insurance in the first place.
'we have the power to print as much money as we choose and we have the most powerful military in the world.'
I used to think that the dollar was backed by the military. It's not about the military, it's about tax collections. The dollar is only as good as the government's ability to collect taxes to pay the debt. And since it is being demonstrated that the US military cannot subdue a country the size of Texas containing a small but determined resistance, what chance have they if a popular but non-violent tax resistance movement springs up in the USA? This government needs the goodwill of its subjects, whether it likes it or not, as it endeavors to heap more debt on our shoulders.
Lockstep is correct that the US Treasury uses an estimate of 15% of nominal exposure as net exposure. Certainly there are individual differences from party to party. The numbers are still monstrous. One of the major problems I see with CDS going forward is that the due diligence selection of counterparties might have looked good when the contracts were written, but who is there now who looks like a good counterparty (absent hundreds of billions in Fed funny money)? Lockstep also points out the situation with AIG, which if I understand it correctly is this: AIG must be kept out of BK court in order to avoid triggering default events and payout requirements in CDS contracts. This seems to be the reason for the ongoing theft from taxpayers to pump up AIG.
On Jan 04 07:09 PM Gtarras wrote:
> Has anybody thought about billions in write-UPs for the big money
> center banks which are coming when spreads start to tighten? The
> tightening is already underway..
>
> "the rescue plan fails to address the potentially disastrous impact
> of a crumbling derivatives portfolio in the face of a rapidly deteriorating
> global economic environment"
> +
> "Citigroup’s exposure to credit derivatives stood at $3.2 trillion
> (notional value)"
>
> I do not have a position in Citi (or any other bank), but looked
> at Citi's CDO exposure earlier last year. The biggest chunk of it,
> as far as I remember, were super senior tranches (both ABS and corporate).
> These exposures tend to give you the wild swing in earnings (because
> of their sheer size), due to FASB 157 rule. Well, when spreads widen,
> Citi's earnings get a horrid MTM hit because of the exposures.<br/>
>
> Watch out when the spreads reverse the course. All this false write-downs
> will be becoming write ups..
>
> I am thinking to go long UYG.
>
>
>
>
>
On Jan 04 10:39 PM mkreisel wrote:
> So far the only idiot in town who failed to hedge its derivatives
> properly is AIG. Big banks such as BAC, C, JPM, WFC all seem to have
> equal derivative assets as liabilities.
>
> Berkshire Hathaway also has about $10 billion worth of credit default
> swaps as pure liabilities, but Buffett has almost $30 billion in
> cash, and he got $4 billion premium for selling $10 billion of insurance
> in the first place.
The thing is...there is no way we will get out of this with only 3%. I would be shocked if we get out under 7%.
concisetrading.blogspo.../
Ryan
On Jan 04 10:39 PM mkreisel wrote:
> So far the only idiot in town who failed to hedge its derivatives
> properly is AIG. Big banks such as BAC, C, JPM, WFC all seem to have
> equal derivative assets as liabilities.
>
> Berkshire Hathaway also has about $10 billion worth of credit default
> swaps as pure liabilities, but Buffett has almost $30 billion in
> cash, and he got $4 billion premium for selling $10 billion of insurance
> in the first place.
On Jan 04 04:54 PM SugarDaddy wrote:
> Okay gents, lets just say that 3% of netted derivatives implode over
> the next 24 months globally. Considering the outside box probabilities
> of some currency implosions here and there and then impute some government
> risks/mandates to come out of nowhere.
>
> 3% of 643 Trillion is a boat load of Cash, I don't care who's cash
> it is, 19+ Trillion cannot be printed nor fixed. Implosion will be
> the result IMHO.
The derivative market has been unregulated since its inception. A crisis of this magnitude will require a global strategy. Do we really believe this bubble is a result of an unregulated free market or a calculated boom bust cycle in order for central banks to create a world economic government under the IMF?
On Jan 05 02:21 AM peter flintoft wrote:
> The Bank of International Settlements recently reported that the
> amount of outstanding derivatives has now reached the $1.14 quadrillion
> mark ($548 Trillion in listed credit derivatives plus $596 trillion
> in notional [or face value] OTC derivatives).
> The derivative market has been unregulated since its inception. A
> crisis of this magnitude will require a global strategy. Do we really
> believe this bubble is a result of an unregulated free market or
> a calculated boom bust cycle in order for central banks to create
> a world economic government under the IMF?
>
On Jan 05 02:04 AM John Lounsbury wrote:
> Great comment stream. What hasn't been discussed is that the effect
> of counterparty risk on financials relates to perception, to confidence.
> No one mentioned that the confidence lost when Lehman went under
> (Bodysurf may have been aluding to it) was a major factor in starting
> the stock market collapse from September. There may have been a managable
> CDS exposure (samrock001 implies a couple of billion) but the amount
> was not known because there is no transparancy. The unknown destroys
> confidence and stocks tumble. If another major player goes under,
> or even comes close, the pressure on financials will be severe and
> the rest of the market will follow.
The disingenuous character of Mr. Pandit's explanation of what Citi does (sounding more like Bedford Fall's Bailey Building & Loan) is nicely identified as well. Pandit says his bank was in this nice, quiet business of taking deposits and making loans -- actually it was in the business of gambling against its credit, they lost, and now we have to bail them out-- but not before the gamblers pocketed their winnings.
At this point, though, while all of these firms deserve to go broke, going short is risky-- their fortunes now rest in the political arena, not business logic. On what terms will Citi be bailed out? Who can say? It is as much in Washington as on Wall Street that this will be decided.
The reason was obviously greed...<<
Well, you got the last part (greed) right, at least.
What we need to do is to TOTALLY SHUT DOWN the poisonous CDS market - it is an absurdity, and very dangerous to many elements in society.
It has already tanked the world's largest insurance company, which is still hopelessly insolvent, despite the lies by its execs on CNBC and to the various regulators. It has imperiled many banks here and abroad, and led to a disastrous freezing of legitimate banking activity. As a side note, I must say that it is just an abomination to have Pandit or any of these other hedge fund gamblers running a bank - they are a menace to society, and have created a host of problems - jail would make more sense than the executive suite for many of these jokers.
Having said that - Citi should be broken up into several pieces - a commercial bank, a regulated brokerage/money manager, and a pile of toxic waste that is managed by the govt to salvage whatever value is there. No money should be paid out to the hapless victims of the other side of ludicrous swaps and other forms of pernicious gambling. Let the losses register where they belong, and incarcerate those who have broken the law.
One final thought - why do so many people assume that, whatever the idiots at hedge funds and the spec-trading community dream up, it is our job to "regulate" it, rather than to shut it down?
An analogy would be as follows - if hundreds of people decide on a mass suicide by jumping off of an 80-story building, is it society's job to clear the sidewalks below, and put up safety nets to catch the falling bodies?
Or is it better to take steps to prevent the madness in the first place? The CDS market is rife with corruption and speculation that is mainly about deriving huge bonuses from 'winning' bets, while dumping the losses on the govt, and then moving on to another fund or trading desk. It is thoroughly corrupt, and just because we have shady facilitators like Hank and Ben helping to keep the game from collapsing, doesn't mean that it is in any way an honest game, or of any significant benefit to society.
However, I agree with all those on the boards, transparency and regulation is needed. I have said the same as well. Even then, it would sink Citibank in a second. It is sad our biggest financial institutions are clearly the worst run. That doesn't bode well for the economy even if the stock market is up.
The author is right, Citibank's management has lost sight of the fundamental job of a bank and engaged in gambling, and shady dealings which they hid on off balance sheet Base I accounting rules they knew would thwart insurance and securities regulations. Bernie Madoff was a saint compared to them.
Couldn't resist - You are indeed talking about the political intervention, to the tune of $8 trillion in guarantees and bailouts, offered by the US government? Perhaps we should be called the regressing world. The real risk is the day when OUR government says "enough is enough". Soon, I hope.
"I used to think that the dollar was backed by the military. It's
> not about the military, it's about tax collections. The dollar is
> only as good as the government's ability to collect taxes to pay
> the debt."
This is true but he failed to see that the US has a latent means of taxing its subjects and that is through Inflation. That is why you need to avoid cash, lest you be taxed via inflation. This is why Buffet's quote, "Cash is trash," is apropos under these circumstances.
On Jan 04 10:49 PM SW Richmond wrote:
> Aryamehr said:
> 'we have the power to print as much money as we choose and we have
> the most powerful military in the world.'
>
> I used to think that the dollar was backed by the military. It's
> not about the military, it's about tax collections. The dollar is
> only as good as the government's ability to collect taxes to pay
> the debt. And since it is being demonstrated that the US military
> cannot subdue a country the size of Texas containing a small but
> determined resistance, what chance have they if a popular but non-violent
> tax resistance movement springs up in the USA? This government needs
> the goodwill of its subjects, whether it likes it or not, as it endeavors
> to heap more debt on our shoulders.
>
>
> Lockstep is correct that the US Treasury uses an estimate of 15%
> of nominal exposure as net exposure. Certainly there are individual
> differences from party to party. The numbers are still monstrous.
> One of the major problems I see with CDS going forward is that the
> due diligence selection of counterparties might have looked good
> when the contracts were written, but who is there now who looks like
> a good counterparty (absent hundreds of billions in Fed funny money)?
> Lockstep also points out the situation with AIG, which if I understand
> it correctly is this: AIG must be kept out of BK court in order to
> avoid triggering default events and payout requirements in CDS contracts.
> This seems to be the reason for the ongoing theft from taxpayers
> to pump up AIG.
On Jan 04 11:50 AM joshchn wrote:
> why is someone who is SHORT on citibank allowed to publish an aritcle
> bashing citibank ???
>
> regardless of weather they disclose the fact-- its unfair and unethical.
>
>
> he needs to stick to writing articles on other sectors- this man
> gains by trying to get citibank lower-
That by far will be the best regulatory improvement when implemented (either the CME or other exchange models)
Kind Regards
aprioritrader.blogspot...
Specifically regarding CitiGroup, Citi was able to extract a really good deal from the govt., at the expense of the taxpayer. More details at :
aprioritrader.blogspot...
I think we have only scratched the surface, Citi is probably neck-deep in trouble.
Disclosure : I have no position in Citi or JP Morgan.
On Jan 05 03:57 PM JasonC wrote:
> The article is nonsense. Read C's actual reports on its book, they
> disclose far more than anyone else, and the story is their net exposure
> is on the order of 0.5% of the gross notional numbers the hyperventilating
> short cites in the article. They hedge is existing risk in cash positions.
> C is incredibly liquid and a tank in hedging terms. It is also forcing
> a positive cash flow in its own direction to the tune of $45 billion
> per quarter - which is its market cap at these ridiculous levels.
> On any long term, forward basis the present price is going to work
> out to a PE between 2 and 3. It isn't going to fail, the authorities
> have made that abundantly clear. But the shark-shorts can't let go
> of their self-fufilling short-em-to-zero bone, and want to turn those
> machines back on. It isn't going to happen. Vols are back to half
> of the elevated levels of October and November. This too shall pass.
> And when it does, C is going to be an epic buy at these levels.
On Jan 04 12:07 PM teraflop wrote:
> Notional amounts can be netted under criteria unique to each Citi-counterparty/coun...
> parent relationship for credit purposes. In other words, if you want
> to calculate Notional amounts, you need a grid by counterparty, you
> can't just add them all up. Credit risk is mitigated through collateral
> postings at inception and ongoing collateral agreements, which should
> be included in any determination of outstanding credit risk. Additionally,
> Notional amounts should not be considered when evaluating Delta-one
> or Flow Risk in a portfolio because of netting agreements or outright
> additive nature of equivalent positions - they don't equate to market
> risk. A good article but throwing around Trillions is a good way
> to scare unsophisticated readers and garner attention.
On Jan 05 03:57 PM JasonC wrote:
> The article is nonsense. Read C's actual reports on its book, they
> disclose far more than anyone else, and the story is their net exposure
> is on the order of 0.5% of the gross notional numbers the hyperventilating
> short cites in the article. They hedge is existing risk in cash positions.
> C is incredibly liquid and a tank in hedging terms. It is also forcing
> a positive cash flow in its own direction to the tune of $45 billion
> per quarter - which is its market cap at these ridiculous levels.
> On any long term, forward basis the present price is going to work
> out to a PE between 2 and 3. It isn't going to fail, the authorities
> have made that abundantly clear. But the shark-shorts can't let go
> of their self-fufilling short-em-to-zero bone, and want to turn those
> machines back on. It isn't going to happen. Vols are back to half
> of the elevated levels of October and November. This too shall pass.
> And when it does, C is going to be an epic buy at these levels.
After all this on-the-mark hand wringing what is to be done? There was clear fraud by tranch-repackagers and bond rating agencies, amoung others. However there has yet to be one indictment.
That's as far as I've gotten so far.
I have always believed that what is different about this recession are the derivatives that now link all of the major financial institutions.
Rumbles in "real" finance like sub prime, alt-a, arm, Eastern European currencies, commercial real estate, create their own serious losses that then tears through the derivative market magnifying losses to unheard of levels.
That is why if there is one more bankruptcy, the entire system will fall like a house of cards, even with the netting effect!
As Sugardaddy says 3% of $640 trillion is a lot of money.
This financial crisis is a forest fire that will burn everything to the ground. I don't believe that it can be saved. The losses will be too large for the government to bail out.
A year ago, I predicted that the banks would have to eventually write off $1 trillion. That number seems quaint now. European Banks are sitting on $24 trillion of toxic assets. US banks may eventually lose $3-$4 trillion.
There is no saving this system. It must be destroyed and built from the ground up. Any money that is thrown into these institutions now is throwing good money after bad.
I have believed for some time
On Feb 20 12:21 AM mr freddo wrote:
> Thank you for an excellent article and also thanks for some great
> follow-up comments.
>
> I have always believed that what is different about this recession
> are the derivatives that now link all of the major financial institutions.
>
>
> Rumbles in "real" finance like sub prime, alt-a, arm, Eastern European
> currencies, commercial real estate, create their own serious losses
> that then tears through the derivative market magnifying losses to
> unheard of levels.
>
> That is why if there is one more bankruptcy, the entire system will
> fall like a house of cards, even with the netting effect!
>
> As Sugardaddy says 3% of $640 trillion is a lot of money.
>
> This financial crisis is a forest fire that will burn everything
> to the ground. I don't believe that it can be saved. The losses will
> be too large for the government to bail out.
>
> A year ago, I predicted that the banks would have to eventually write
> off $1 trillion. That number seems quaint now. European Banks are
> sitting on $24 trillion of toxic assets. US banks may eventually
> lose $3-$4 trillion.
>
> There is no saving this system. It must be destroyed and built from
> the ground up. Any money that is thrown into these institutions now
> is throwing good money after bad.
>
> I have believed for some time