Citi(bank) in crisis

Following is a link about the recent citi bank crisis … narrated in Dutch but entirely in English …

While not a Citibank story, they are sort of related.

A former colleague nabbed a job at Lehman’s last year, and as he moved over sold all his shares in the mob I work for and plunged them into Lehman’s. No he has no money and no job. Ouch!

It’s ugly out there, and the outlook is for further ugliness.

HD

Interesting times for sure.

Come gather round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
Youll be drenched to the bone.
If your time to you
Is worth savin
Then you better start swimmin
Or youll sink like a stone
For the times they are a-changin.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance wont come again
And dont speak too soon
For the wheels still in spin
And theres no tellin who
That its namin.
For the loser now
Will be later to win
For the times they are a-changin.

Come senators, congressmen
Please heed the call
Dont stand in the doorway
Dont block up the hall
For he that gets hurt
Will be he who has stalled
Theres a battle outside
And it is ragin.
Itll soon shake your windows
And rattle your walls
For the times they are a-changin.

Come mothers and fathers
Throughout the land
And dont criticize
What you cant understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin.
Please get out of the new one
If you cant lend your hand
For the times they are a-changin.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin.
And the first one now
Will later be last
For the times they are a-changin.

One of the reasons why I am not fond of any shares as bonus payment - if the firm goes belly up you loose double, as your example illustrates. Cash rules, and I like to decide myself where I invest it (not saying that I am any good at it though :blush: ).

Yep. I am selling.

I have no sympathy for the greedy decision-makers who chose to gamble and lost. I feel bad for all the people hurt by their decisions, though.

I hear you, but it’s not like the warnings weren’t known. Where I work they’ve been cautioning about this inevitable collapse for some years. The US Fed really should have called a halt to this subprime crime a long time ago,

The world thrived on the false liquidity that it brought, but as all that false cash sloshed about the world no one wanted to stop it. Unfortunately it means the period of correction will likely be longer and the downturn much sharper. Consider it a Champagne hangover. Great if you managed to get in and make a killing while the loot was about and can bail out now without jail time. Bummer if you can’t.

Bear Sterns was the first brokerage to fold, then Lehman’s (biggest bankruptcy claim in US history) and now talk of Merrill Lynch being bought and AIG to crumble. If you have savings, you;d be wise to consider how much your deposits are guaranteed. In HK they’ll only refund a maximum of HK$100k, no matter how much more than that you happen to have in your account when the bank collapses. Turning half of your investments into second hand gold Rolexes isn;t that bad an option in this environment. Alternatively choose physical gold over gold paper.

HG

Even that is no guarantee. As I mentioned in this thread the deposit insurance fund (in the US) itself may collapse as it covers a fraction only:

So if word spreads that savings aren’t save at all and people start withdrawing cash like crazy, and they will do so at any bank (not just the ones that are already in trouble like WaMu), it will make things even worst, spiraling down to the very bottom. 1929 anyone?

That the US economy has rested on less than perfectly sound foundations should have been clear to most years and years ago.

HGC mentioned that his workplace has been warning about exactly this happening for some time, our former boss in the financial sweatshop said things to the same effect nearly a decade ago, and took up positions according to this several years ago.

The poor people suffering - too fucking bad.

I feel for the who lsoe their jobs during this crisis, however the people buying shares should not see that as risk free, the same goes for the people whose profiligate lending was a very large portion of this collapsing bubble.

That said, I think that the cupboards will empty of skeletons over the coming months, not years. =Rock bottom is less than a year away, IMHO.

I think the huge bonuses that were paid out to bankers everywhere as a % of revenue for each annual year could be a major part of it. That’s a recipe for disaster in any business, anywhere! The cheap money was being passed down a chain where everybody could get a cut, by artificially inflating the suppy and price of everything, bankers, developers, corporations and even governments (through taxes on property sales) were making double their money, simply by taking a % of cake that was growing artifcially bigger every year.

I’d bet at least half the executive bankers could see through the charade but were making so much money that they couldn’t resist it and probably thought it doesn’t matter because by the time the house of cards falls they were thinking ‘I’ll be sipping cocktails at my house in the Hamptons’. The best way to combat this would be to institute a ‘clawback’ clause, whereby if future losses were linked with short-term decisions the bank could claim these bonuses back.

At least things are surfacing and being exposed, this is healthy for long term stability. A little financial Darwinism if you will, clean out the corruption and destroy the palaces without foundations.

The thing I see as being the scariest about all this is the high likelihood of countries like China stepping in with huge amounts of capital and stepping up the process of owning more and more of America. This is the time when ultra rich Americans should give back and invest. They could pick up some huge companies for pennies on the dollar, and in the long run become even richer. I am sure there are some very happy Chinese right now in Shanghai/Bejing drooling at the prospect of buying more and more for less. If we think this is ugly, wait until we are deeply in debt to the Chinese!

America is already deeply in debt to the Chinese, as China is the number one foreign holder of American debt (if I am not mistaken).
I don’t think they are going to be rushing in buying up American business ‘cheap’, many of the sovereign wealth funds have lost tonnes of money already as their shares continue to be diluted by further price drops and capital raising rounds.

Sure they are. They have been buying and will continue to buy. Foreclosures bring smiles to their faces.

Woohoo! Die C die!!! Me ruvvin’ it!

finfacts.ie/irishfinancenews … 4734.shtml

'A system where individual bank traders had no reason to co-operate with other departments while they have millions of dollars of incentives to go it alone with high-risk, high-return strategies with no payback required if the rainmaking turns to disaster, contains the seeds of its own destruction…

The seven largest US banks paid their bankers $95bn in compensation between 2005 and 2007, according to the consultancy firm Accenture.

What other industry pays it staff some 50 per cent or more of their annual revenues?’

The American government should ask for it’s money back…

This was not caused by rogue traders, this financial meltdown is systemic, caused by a systemic flaw in housing finance and how it is obtained and processed by the financial system. I kid you not.

Chopping off a few heads may help the feel good factor up a bit, however reform and learning from past mistakes will do more good longer term.

Sub-prime were financial instruments invented by bankers as a way to make more debt and therefore more % for them to cream-off. If they weren’t rewarded so well and faced financial penalty for the negative consequences they simply wouldn’t have pursued this strategy.

Guys please get your fact straight.

The whole situation goes back to last August 1 when the new “fair value” rules were implemented
These rules had been discussed at length over a period of years but unfortunately were put in place just as interest rates went up (a little)
Some bright accountant realised that the CDOs were not as easy to sell as they had been and under “fair value” rules he had to mark them to market - which unfortunately meant $0 because no-one was buying.
Fortunately those clever accountants had put in some fall back mechanisms so that the assets could still be valued but they were now worth a fraction of what they had been worth
Whilst all this was going on the underlying assets - i.e. the mortgages had not altered in anyway, they were just as sound/risky as they were prior to August 1
Now the first financial institutions to cotton onto this and mark down their assets caused a bit of a panic but nothing like the stories that came out when the press got hold of it
At this point of course the housing market was still completely healthy, in fact it hadn’t even stalled but already the press talked about the number of fixed rates that were coming to an end and how the interest rates would have to go up causing millions of defaults
Subprime became the catchphrase and the banks swiftly became the whipping boys
The likes of Citibank did exactly the right things in the fall (given the circumstances) and started unwinding their own CDOs and putting mortgages back on the books
Unfortunately some of these assets had been sold to people who didn’t understand them and who thought they were sitting on worthless assets because of the press
Meanwhile of course Hedgefunds started selling bank stocks short and the press kept whipping up a frenzy
The mortgage market started to bend a little with an increase in defaults in both the high risk and standard mortgage market but again this was within tolerable limits
The press whipped this bit of news up enough to start to affect house prices, which of course meant that there was another factor in the banking models which had changed and a further round of panic ensued
From here the spiral and the story become obvious to anyone who has been watching but the bit that ALMOST EVERYONE is missing is that the whole problem could still be fixed

AIG pointed this out back in March and begged the regulators to rethink the flaw in the “fair value” system. Effectively if they went back to the old ways of accounting everyone would be fully capitalised and the risks within the housing/debt markets were manageable
Fortunately for the few who will profit out of the current situation the powers that be ignored the plea for help and the banks stopped lending to each other
Everyone who was reliant on capital for their leveraged business models came unstuck because there simply wasn’t any more capital available.
The Chinese and the Arabs thought they had snapped up a few bargains and we heard cries of protectionism - effectively turning off the only possible flows of funds into the markets
Even now the accountants could solve the problem but they argue that “fair value” will lead to a healthier market in the long term and better “transparency” of accounts
Personally I think I’d rather have a flawed model than have my shareholdings decimated by the powers that be doing what is “best for me”

Anyway long story short. You should all stop blaming the financial institutions because it simply shows your ignorance.
Blame the government of the US by all means particularly for the rape of a 1trillion dollar company that they effectively nationalised for free and granted a loan at punitive rates whilst they break it up.
Blame the accountants (I do) who wouldn’t listen to years of oibjections over their new system and having implemented it were to stubborn to admit their mistake
Blame the investors who thought the ride would keep on up and up forever
Blame the short sellers in the HEdge Fund market who manipulated stocks down for their own gain

But please don’t blame the people who were making housing finance available, managing risks within that market and generally getting paid a pittance. Risk managers and those involved in setting up sub participation and securitisation deals don’t earn fortunes. Stock traders, Investment bankers, Hedge fund managers; these are the people who have been paid the US$95 billion in a 2-3 year period by their bosses and they have always been paid this way…and guess what they are also not the ones to blame - although they will be the ones who lose out the fastest and probably the most in terms of lost incomes, bonuses and written off shareholdings.

Stop believing the press, read between the lines and educate yourselves.

Just as a final point. I sold my China shareholdings in October, and I got out of the markets completely in May…luck?

Ok. I’ve got one fact straight already: [removed by moderator].

Which is why mortgage lenders were imploding long before August 1 2007. One of the first really big implosions that caught my attention was New Century, and they were in March 2007. Golly, those accounting rules must’ve been really powerful to trigger their blowup five months before the rules were even implemented.

Take a look at:
ml-implode.com/
for a list, including times, as well as some reasonably informed commentary.

As for the rest of this crap, I’m not even going to bother trying to do a line-by-line explanation of [expletive removed], just going to note that damn near all of it is silly drivel:

[quote=“Edgar Allen”]These rules had been discussed at length over a period of years but unfortunately were put in place just as interest rates went up (a little)
Some bright accountant realised that the CDOs were not as easy to sell as they had been and under “fair value” rules he had to mark them to market - which unfortunately meant $0 because no-one was buying.
Fortunately those clever accountants had put in some fall back mechanisms so that the assets could still be valued but they were now worth a fraction of what they had been worth
Whilst all this was going on the underlying assets - i.e. the mortgages had not altered in anyway, they were just as sound/risky as they were prior to August 1
Now the first financial institutions to cotton onto this and mark down their assets caused a bit of a panic but nothing like the stories that came out when the press got hold of it
At this point of course the housing market was still completely healthy, in fact it hadn’t even stalled but already the press talked about the number of fixed rates that were coming to an end and how the interest rates would have to go up causing millions of defaults
Subprime became the catchphrase and the banks swiftly became the whipping boys
The likes of Citibank did exactly the right things in the fall (given the circumstances) and started unwinding their own CDOs and putting mortgages back on the books
Unfortunately some of these assets had been sold to people who didn’t understand them and who thought they were sitting on worthless assets because of the press
Meanwhile of course Hedgefunds started selling bank stocks short and the press kept whipping up a frenzy
The mortgage market started to bend a little with an increase in defaults in both the high risk and standard mortgage market but again this was within tolerable limits
The press whipped this bit of news up enough to start to affect house prices, which of course meant that there was another factor in the banking models which had changed and a further round of panic ensued
From here the spiral and the story become obvious to anyone who has been watching but the bit that ALMOST EVERYONE is missing is that the whole problem could still be fixed

AIG pointed this out back in March and begged the regulators to rethink the flaw in the “fair value” system. Effectively if they went back to the old ways of accounting everyone would be fully capitalised and the risks within the housing/debt markets were manageable
Fortunately for the few who will profit out of the current situation the powers that be ignored the plea for help and the banks stopped lending to each other
Everyone who was reliant on capital for their leveraged business models came unstuck because there simply wasn’t any more capital available.
The Chinese and the Arabs thought they had snapped up a few bargains and we heard cries of protectionism - effectively turning off the only possible flows of funds into the markets
Even now the accountants could solve the problem but they argue that “fair value” will lead to a healthier market in the long term and better “transparency” of accounts
Personally I think I’d rather have a flawed model than have my shareholdings decimated by the powers that be doing what is “best for me”

Anyway long story short. You should all stop blaming the financial institutions because it simply shows your ignorance.
Blame the government of the US by all means particularly for the rape of a 1trillion dollar company that they effectively nationalised for free and granted a loan at punitive rates whilst they break it up.
Blame the accountants (I do) who wouldn’t listen to years of oibjections over their new system and having implemented it were to stubborn to admit their mistake
Blame the investors who thought the ride would keep on up and up forever
Blame the short sellers in the HEdge Fund market who manipulated stocks down for their own gain

But please don’t blame the people who were making housing finance available, managing risks within that market and generally getting paid a pittance. Risk managers and those involved in setting up sub participation and securitisation deals don’t earn fortunes. Stock traders, Investment bankers, Hedge fund managers; these are the people who have been paid the US$95 billion in a 2-3 year period by their bosses and they have always been paid this way…and guess what they are also not the ones to blame - although they will be the ones who lose out the fastest and probably the most in terms of lost incomes, bonuses and written off shareholdings.

Stop believing the press, read between the lines and educate yourselves.

Just as a final point. I sold my China shareholdings in October, and I got out of the markets completely in May…luck?[/quote]

Congrats. Cheers.

Anyway long story short. You should all stop blaming the financial institutions because it simply shows your ignorance.
[color=#0000FF]Who else am I going to blame, they are the ones who invented this crap, traded it, commited fraud and now getting bail-outs and no penalties[/color]

Blame the government of the US by all means particularly for the rape of a 1trillion dollar company that they effectively nationalised for free and granted a loan at punitive rates whilst they break it up.

[color=#0000FF]Eh, the government and the bankers , same thing really [/color]

Blame the accountants (I do) who wouldn’t listen to years of oibjections over their new system and having implemented it were to stubborn to admit their mistake
Blame the investors who thought the ride would keep on up and up forever
Blame the short sellers in the HEdge Fund market who manipulated stocks down for their own gain
[color=#0000FF]Accountants are just accountants, they count money![/color]

But please don’t blame the people who were making housing finance available, managing risks within that market and generally getting paid a pittance.
[color=#0000FF]This gave me the biggest laugh[/color]

Risk managers and those involved in setting up sub participation and securitisation deals don’t earn fortunes. Stock traders, Investment bankers, Hedge fund managers; these are the people who have been paid the US$95 billion in a 2-3 year period by their bosses and they have always been paid this way…and guess what they are also not the ones to blame - although they will be the ones who lose out the fastest and probably the most in terms of lost incomes, bonuses and written off shareholdings.
[color=#0000FF]They are all to blame. They run the show, creamed the profits off total crap and they don’t have to pay back a cent. They earned more money in a few years then most workers in their lives. They did this by promoting a philosophy of 'productivity for workers, lean and efficient corporations, open world trade, invest in the stock market is a winner always, keep investing in the good times and bad blah blah…The regular taxpayers however (esp. in America) have to cover the losses with their sh&tty salaries, no health benefit, no retirement fund. [/color]

Stop believing the press, read between the lines and educate yourselves.
[color=#0000FF]At least the press gets it right half the time. I 've been reading about this sort of scenario going to happen for the last 2-3 years…the financiers knew exactly how it could play out, but they wanted to keep the gravy train growing as long as they could[/color]

Just as a final point. I sold my China shareholdings in October, and I got out of the markets completely in May…luck?[/quote]
[color=#0000FF]What are you talking about dude?[/color]

[quote=“headhonchoII”]I think the huge bonuses that were paid out to bankers everywhere as a % of revenue for each annual year could be a major part of it. That’s a recipe for disaster in any business, anywhere! The cheap money was being passed down a chain where everybody could get a cut, by artificially inflating the suppy and price of everything, bankers, developers, corporations and even governments (through taxes on property sales) were making double their money, simply by taking a % of cake that was growing artifcially bigger every year.

I’d bet at least half the executive bankers could see through the charade but were making so much money that they couldn’t resist it and probably thought it doesn’t matter because by the time the house of cards falls they were thinking ‘I’ll be sipping cocktails at my house in the Hamptons’. The best way to combat this would be to institute a ‘clawback’ clause, whereby if future losses were linked with short-term decisions the bank could claim these bonuses back.[/quote]

Bah! I work for a brokerage that had nothing to do with those crap loans because we knew it was crap and that it would eventually blow up. Consider it a game of pass the parcel. However, bonuses were high because revenue was high. You don’t pay, then good people go where the money is better.

Difficult for people outside the industry to understand the bonus system but also difficult to understand the long hours, stress and how you can be on your ear in a heartbeat.

Now if you were talking of CEO compensation, then I’d agree with you. They should be rewarded for the returns they bring shareholders, but often this is completely disregarded, usually because they signed for an agreed bonus at the outset. It’s the hook to bring them onboard

HG