Wednesday, November 07, 2007


From the comments on the previous post More mark to model:

It’s worse than you think. Even the top brass at the big C (our nations largest) don’t know how much toxic waste sub prime CDOs they’ve got on book, and off book in siv s. C is not nearly alone. Your idea about’s is very unlikely to be a safe haven and the list goes on and on and on. The problem takes on new proportions of fugly when you realize that the monolines (bond insurers) are way in over their heads. Counter party trust is in bad shape. This mess cascades into a true shit avalanche by summer 09 during the next round of mortgage re-sets. The Dollar is being deserted like lifeboats leaving the Titanic. (Look what the dollar did at 9pm on the forex market this evening... a brief period of free fall during a long down trend.) Make no mistake about it this doesn't end pretty. The fed has a grim the dollar and plunge the country into depression or support the it appears to be doing with lower interest rates... and generate hyperinflation and a dollar crash. Suggested reading, Nouriel Roubini blog and Calculated Risk.

Funny story: my brother was at an event in Minneapolis about 10 days ago where Rob Rubin was the keynote speaker. During Q&A my brother asked him about subprime, SIVs, etc. and Rubin replied rather categorically that they weren't a problem for Citi. The local paper covered the story but not the national media.

StarTribune: Citigroup and other giant U.S. banks are not imperiled by subprime debt, despite the fact that they own tens of billions of dollars in debt linked to the deteriorating mortgage markets, former U.S. Treasury Secretary Robert Rubin said in Minneapolis on Wednesday.

Rubin, who was a Goldman Sachs executive before serving as President Bill Clinton's Treasury secretary, said the U.S. economy has bigger worries than subprime debt, ranging from the fear of consumer spending hitting a wall to the sagging international value of the dollar.

At a conference sponsored by the Dorsey & Whitney law firm, Rubin found himself answering questions about the growing troubles of the U.S. financial system stemming from the lax lending standards that prevailed during the housing boom.

The Bush administration has pushed the money-center banks to create a fund to avert a panic sell-off of subprime mortgages -- and the securities backed by those loans, often referred to as structured investment vehicles, or SIVs.

The efforts to create that $100 billion fund should not be seen as an effort by Citigroup and other major banks to protect themselves by propping up the subprime market, said Rubin, who is now a Citigroup director and chairman of its executive committee.

More than 95 percent of Citigroup's investments in SIVs are fully financed through the rest of 2007 and the bank has the money to cover losses if the value of subprime loans continues to fall next year, he said.

"I think the problem with this SIV issue is that it's been substantially misunderstood in the press," said Rubin, who has a considerable personal stake in the fate of Citigroup. The banking firm paid him $17.3 million last year.

"The banks appear to be in fine shape," he said. "That's not a problem."

The SIV issue isn't critical for the economy, he insisted.

"It's massively less important that it's been presented," Rubin said. "It's been presented as a sort of centerpiece of what's going on. I just don't think that's right."


Anonymous said...

Pulled this straight off of Nouriel Roubini's blog:

"Bernard - a contributor to the comments on this blog - has provided further insights and data on the "level 3" assets of some major US financial institutions. He says:

Look at the info Citigroup just filed with the SEC today: they have $135 BILLION in LEVEL 3 ASSETS.

I have a neat idea.

Why don't we take every single major financial institution out there and then divide their total Level 3 assets by their equity capital base and make comparisons?

This will give us a better idea as to which of them may really remain solvent at the end of the day. Shall we?

Let's have a look at Citigroup. Their equity base is $128 billion. Therefore, their Level 3 assets to equity ratio: 105%

How about Goldman Sachs? Level 3 assets are $72 billion, equity base is $39 billion. Their Level 3 assets to equity ratio is 185%.

Morgan Stanley: $88 billion in Level 3, equity base is $35 billion. Ratio: 251% (WOW!)

Bear Stearns: $20 billion in Level 3, equity base is $13 billion. Ratio: 154%

Lehman Brothers: $35 billion in Level 3, $22 billion in equity. Ratio: 159%

Merrill Lynch: $16 billion in Level 3, $42 billion in equity. Ratio: 38%

Here is the Level 3 assets to equity ratio summary:

Citigroup 105%

Goldman Sachs 185%

Morgan Stanley 251%

Bear Stearns 154%

Lehman Brothers 159%

Merrill Lynch 38%

This becomes very interesting now, doesn't it?

Looks to me like Goldman Sachs and Morgan Stanley are by far in the WORST situation among the investment banks.

And yet the media is focusing all of their attention on Merrill Lynch---which actually has by far THE LEAST EXPOSURE of all of them. What a joke.

As I said before, the media should stop diverting attention and trying to make this into a "Merrill-specific" problem.

All of the investment banks are in deep trouble. These numbers should make that extremely evident. The deception must be exposed.

Written by Bernard on 2007-11-05 11:33:55"

Yup, NOW I'm scared

Anonymous said...

Dr. Hsu

Just in case some readers think the "Casandra's" warning about the size of the fallout from the subprime mess is is an article from a UK paper:

lead para.

"Markets fear banks have $1 trillion in toxic debt

By Sean O’Grady, Economics Editor Published: 06 November 2007

A new phase in the credit crunch, one of “$1 trillion losses” seems to be dawning. The crisis at Citigroup and renewed doubts about some of the world’s leading banks disquieted stock markets on both sides of the Atlantic yesterday, with the fractious mood set to continue."

you can read it here:

fasten your safety belts.

with hope,
Mike Savoca

Blog Archive