Citigroup Saw No Red Flags Even as It Made Bolder Bets

[chinaco]

According to that article Citi's internal line of defense (Risk Mgmt) did not work.

The Regulators failed. Probably because some of the people who run the Federal groups are from Wall Streeters. Cronies and setting up for the next job

The Rating Agencies Failed. Greed and Money...

The internal risk management groups apparently failed.

Everyone looked the other way.


http://www.nytimes.com/2008/11/23/business/23citi.html?ref=business

They are likely to be the next AIG.

http://www.nytimes.com/2008/11/22/business/22citi.html?ref=economy


I will never believe that some of those people did not know what was happening. At the very least the group working the CDO business had to know they were getting in over their heads.

 

[DragoMuseveni]

According to that article Citi's internal line of defense (Risk Mgmt) did not work.

The Regulators failed. Probably because some of the people who run the Federal groups are from Wall Streeters. Cronies and setting up for the next job

The Rating Agencies Failed. Greed and Money...

The internal risk management groups apparently failed.

Everyone looked the other way.


http://www.nytimes.com/2008/11/23/business/23citi.html?ref=business

They are likely to be the next AIG.

http://www.nytimes.com/2008/11/22/business/22citi.html?ref=economy

It will be an interesting week. Thankfully the market will be closed on Thursday, it looks like we will need that.

 

[Yankees Rule]

They were wanting to buy Wachovia!!!!!!

This whole thing is nuts!

 

[Helen]

They were wanting to buy Wachovia!!!!!!

This whole thing is nuts!

Yea, this whole thing unfolding is pretty incredible to watch. My partner and I just walked to the library and noticed 3 going out of business signs.

2009 is going to be ugly.

 

[Gone4Good]

I'm shocked.

I read the whole NYT article and I didn't see Fannie or Freddie mentioned once. And here I thought they caused the entire problem.

 

[Gone4Good]

They were wanting to buy Wachovia!!!!!!

This whole thing is nuts!

If you followed it closely it was pretty obvious that the Wachovia deal was designed to save Citi as much as it was designed to save Wachovia. Citi needed Wachovia's depositor base and to mitigate the impact of Wachovia's sour asset portfolio on Citi the government was assuming loan losses above a certain level. There was a reason Citi's share price jumped ~50% on the news.

When Wells offered a better deal (one that didn't require any taxpayer risk) FDIC Chairman Sheila Bair said she still supported the Citi transaction as being "in the best interest of the financial system". I'd read that as saying "Citi needs this deal and Citi is too big to fail".

 

[REWahoo]

" . . . read, "Citi needs this deal and Citi is too big to fail".

I remember when "bailout" meant emergency egress from a damaged aircraft...

"The federal government was nearing an agreement Sunday night to rescue Citigroup Inc. by helping to remove billions of dollars in toxic assets from its balance sheet, people familiar with the talks say."

Bailout Talks Accelerate for Ailing Citigroup - WSJ.com

 

[chinaco]

If you followed it closely it was pretty obvious that the Wachovia deal was designed to save Citi as much as it was designed to save Wachovia. Citi needed Wachovia's depositor base and to mitigate the impact of Wachovia's sour asset portfolio on Citi the government was assuming loan losses above a certain level. There was a reason Citi's share price jumped ~50% on the news.

When Wells offered a better deal (one that didn't require any taxpayer risk) FDIC Chairman Sheila Bair said she still supported the Citi transaction as being "in the best interest of the financial system". I'd read that as saying "Citi needs this deal and Citi is too big to fail".

Interesting thought.

And I was thinking they were just greedy @$$h0!3s! They are really devious greedy @$$h0!3s. Money any way they can get it. Run the company in the ground taking ridiculous risks, take tax payer money for a bailout, then take the tax payer money and the Treasury's sweethheart dal for Wachovia ( buy out a competitor in the guise of being the "white knight" to rescue Wachovia's depositors fro bank failure when they know they--Citi-- are failing).


BTW - Citi just took more of Taxpayers money. This is a sweeter deal than buying Wachovia... the money is free and guaranteed!

But we need to remember... they are too big to fail. Break that company up into a 100 pieces and sell it off now!

http://money.cnn.com/2008/11/23/news/companies/citigroup/index.htm?postversion=2008112400

 

[Hal3]

LBO Planet Earth

I will never believe that some of those people did not know what was happening. At the very least the group working the CDO business had to know they were getting in over their heads.

I thought the financial world was collapsing because a houskeeper in San Diego making $20,000 per year lied about her income an bought a $500,000 house. Isn't that what caused the whole mess?

 

[Yankees Rule]

I thought the financial world was collapsing because a houskeeper in San Diego making $20,000 per year lied about her income an bought a $500,000 house. Isn't that what caused the whole mess?

That is what those republicans would like you to believe. It is all pretty amazing.

Like I said in another thread lets let the whole system crash quickly. This slow motion crash is well time consuming and painful. Get out of debt, grow veggies raise some chickens and goats and cut firewood. Its gonna be surviaval of the fittest. Oh yea get a gun and lots of ammo.

 

[al_bundy]

They were wanting to buy Wachovia!!!!!!

This whole thing is nuts!

no it wasn't

Citi was going to take the depositor base and dump all the bad loans on the remains of Wachovia and let it go under

 

[Gone4Good]

BTW - Citi just took more of Taxpayers money. This is a sweeter deal than buying Wachovia... the money is free and guaranteed!

I wouldn't call it "free" . . .8% + warrants has a real cost. But it's certainly "below market" money.

On the other hand. If the government borrows 3 year money at 1.75% and lends to a company that it has guaranteed can't fail at 8% + equity upside, it might not be a bad deal for taxpayers.

 

[samclem]

On the other hand. If the government borrows 3 year money at 1.75% and lends to a company that it has guaranteed can't fail at 8% + equity upside, it might not be a bad deal for taxpayers.

Funny. "Guaranteed can't fail" because the government will keep pumping money in. This could be a really expensive "good deal." It's like a financial perpetual motion machine--we need somebody who knows thermodynamics to explain why it won't work. I wonder why the private money wasn't beating down the door to make this deal?

The government knows as much about ROI as Mother Theresa knew about G-strings.

 

[Gone4Good]

I wonder why the private money wasn't beating down the door to make this deal?

Your faith in the ability of private money to sniff out good deals in the current environment is belied by +900bp credit spreads on bonds of companies that have no prospect of default, and 100% recovery in default.

I'm also not aware of any private institution that has a 1.75% cost of capital. Last I checked Berkshire Hathaway 5 year CDS was trading at ~500bp over LIBOR . . . spread levels typically reserved for "junk" companies.

 

[haha]

Your faith in the ability of private money to sniff out good deals in the current environment is belied by +900bp credit spreads on bonds of companies that have no prospect of default, and 100% recovery in default.

I'm also not aware of any private institution that has a 1.75% cost of capital. Last I checked Berkshire Hathaway 5 year CDS was trading at ~500bp over LIBOR . . . spread levels typically reserved for "junk" companies.

This is a serious post. Could you name a few that you feel fall into this category?

Ha