Archive for the ‘Bank Collapse Watch’ category

Bank Collapse Watch: ALL OF THEM!

November 25, 2008

Does this finally make the point any clearer?

Citigroup’s Uneasy Victory

Federal regulators got a fresh inside look at Citigroup’s books over the weekend—and it wasn’t pretty.

The result: a new $306 billion federal bailout for the bank. On the one hand, it provides more clarity as to the lengths the government will now go to shore up the U.S. financial system. On the other hand, investors continue to be wary about whether Citi was worth saving from oblivion. Worse, some of them worry that if a bank with one of the highest capital ratios nearly went under, who’s next?

“You had a tremendous amount of people looking inside at Citi in the last few days to figure out how bad it was, and they came away thinking that the capital markets can’t handle this,” says David Ellison, manager of the $185 million FBR Small Cap Financial Fund. “So, Citigroup wasn’t a going concern. What does it tell you about the industry and everybody else all around the world that has the same assets?”

Emphasis added by me.

When does the light bulb come on? When does the dawn break? When it is as clear as glass?

Every bank in the entire world is bust. The contamination is global. This is Game Over!


We are being carted off in metaphorical boxcars to the concentration camps of Depression 2.0 and Hyperinflation. Total and utter systemic destruction of the entire world we have known.

Every dollar being thrown at this is being deflated down to about ten cents. And that’s me being optimistic. The pessimistic side of me believes every dollar tossed is actually going negative. Not only isn’t a dollar destroying debt, it’s creating brand new debt. In exactly the same way Michael Lewis detailed in The End.

Read between these lines, dammit:

Under the guarantee, Citi will assume any losses on the $306 billion portfolio up to $29 billion on a pretax basis — meaning the government will assume 90% of any losses.

According to people familiar with the negotiations, the government struck a plan to “ring-fence” around about $300 billion in questionable assets, which will remain on Citigroup’s books. That was the only group of assets for which the feds and Citi could agree on a potential value, sources say. That amounts to just 15% of Citi’s total assets, which are a shade over $2 trillion.

The plan is not only good for the system, say those sources, but it provides cheap insurance for the government compared with the costs of a financial system in meltdown mode.

Sources also say that the calculations on the value of the portfolio were made on the “very unlikely event” that the U.S. economy has a downturn as severe as the Great Depression. The values of the assets in that $300 billion pool were based on projected cash flows for the life of the assets and not on their current and fluctuating distressed prices.

Emphasis added by me.

CitiGroup is a stinking Tower of Shit!

— from Sinfest

Let me repeat the key sentence:

Worse, some of them worry that if a bank with one of the highest capital ratios nearly went under, who’s next?

One of the highest capital ratios! And that capital is supporting nothing but shit!

And the government could only agree on a Depression 2.0-valuation of fifteen percent of that shit!

The rest of it is such shit that it should be called Shit 2.0!

CitiGroup has one trillion dollars off the books. Is that Shit 2.0 — or is it even worse: Shit 3.0?!

How much clearer does it need to be? Look at this:

There’s only one reason to agree to such terms, says Ellison: to stay alive. “There are capitalists all over the place, but no one wanted to do the deal,” he adds. “This is chemo. They need this capital to stay alive.”

By one measure — tangible common equity to tangible assets — Citi already was on life support. The ratio is a strict definition of shareholder capital (setting aside infusions from TARP or the government) compared with the book value of a bank’s assets. It’s not a number that necessarily defines the overall financial health of a bank, but it’s one gauge to measure capital adequacy. A bank that ranks low on this measure doesn’t necessarily rank low on other measures. For Citi, that ratio is 2.4% vs. a more typical ratio for big banks of 5% to 6%.

That means a 1% decline in the value of Citi’s assets, or $20 billion, would reduce common shareholders’ equity by about 42%. Says Bill Mann, financial analyst for Motley Fool: “What’s scary is that it wouldn’t have taken much for the bank to be wiped clean.”

Emphasis added by me.

What are CitiGroup’s assets?! Shit! And Shit 2.0! Securities based on fraudulent mortgages for homes which are plummeting in value. The Government could see the price of homes going into the toilet — they had to have shared that news with all the banks prior to making it public. That had to force CitiGroup’s hand! CitiGroup did the numbers and they came up COLLAPSE!

The true bottom line:

If Citi was in dire need of government intervention, what about other big banks? Joel Cohen, co-CEO of Sagent Advisors, a financial advisory firm and former co-head of global mergers and acquisitions at Donaldson, Lufkin & Jenrette, isn’t encouraged: “There’s still a lot of this bad stuff on banks’ balance sheets.”

Emphasis added by me.

Go ahead, try to put that figure into a spreadsheet: “a lot”.

It’s already been quantified: One quadrillion dollars. That’s one thousand trillion dollars.

How long will we have to wait for that to pass through the intestines of economic orthodoxy? How much more pain will that create — and to how many? And who will be left holding a bag of Shit 2.0 in the end? We will — as our nation (as well as other nations) throws our current and future tax dollars into this new Toilet 2.0.

Are we going to get to one thousand bank failures? Only twenty-two have been seized thus far. How long for the nine-hundred and seventy-eight others to fall?

This is not the end. This is only the beginning of things.

How long before everyone recognizes the one way out?

Bank Collapse Watch: CitiGroup 3

November 24, 2008

No, I’m not removing CitiGroup from Bank Collapse Watch status. The government sponsorship is a sham.

What The Citi Deal Doesn’t Do

Citigroup’s stunningly complex rescue deal with the federal government buys it enough time to restore confidence, but leaves many issues unresolved.

The company still faces surging credit costs, potential losses from loans on its books and a massive restructuring project aimed at eliminating 53,000 employees by the spring. Its management remains intact even after the government rescue, but it is still unclear what the Citigroup of the future will look like.

Chief Executive Vikram Pandit wants to shed $500 billion of unwanted assets (he’s 35% of the way there), exit unprofitable businesses and redirect Citi, all at a time when profits from its mainstay corporate and investment bank are hurting from the softening economy.

Emphasis added by me.

Ever been behind in rent to landlord? Ever bought extra time, hoping you’d come up with the back rent — but you currently had no way in the world to do that? This is the position of CitiGroup.

The government will buy $20 billion in preferred shares in Citi, nearly doubling its equity investment in the company since October. It is also guaranteeing losses on $306 billion of assets in exchange for a $7 billion fee. Citi has to cut its dividend to 1 cent and will absorb the first $29 billion of losses on the troubled mortgage and other assets, with the government stepping in after that.

The guarantee is believed to cover most of an estimated $314 billion of residential and commercial mortgage loans and securities and some of $9.4 billion in related hedges, according to analysts at CreditSights. Those assets have weighed on Citigroup all year as the credit markets seized up.

But that leaves unguaranteed another $362 billion of credit card and consumer loans and $428 billion in corporate loans, asset-backed securities, derivatives and other assets. “We believe these assets are not guaranteed by the U.S. government for the most part and are not immune to weakness in the overall economy,” CreditSights says.

Emphasis added by me.

So we’ll wind up eating another third of trillion dollars?

Because no way no how is this going to work.

And still in the shadows, lurkling still unmentioned, is that one trillion dollars of off-the-books stuff CitiGroup is scared to death will come to light.

You think with this, CitiGroup is finished begging at the public trough?


There will be a second round.

Chronicles Of Depression 2.0: #437: Global

November 24, 2008

The world’s central banks must buy assets

The world economy is suffering from a Keynesian shortage of demand. Worse, it is trapped in a dangerous downward spiral of falling asset prices, rising bankruptcies, foreclosures and unemployment feeding into more of the same, along with falling commodity and now goods prices. Since no country is exempt, international co-ordination is needed and made easier because of the obvious common interest. The rapidity of the current contraction also means that fiscal solutions, though helpful, are not timely enough and create obvious free rider problems.

That is why monetary policy should be the first line of action. But conventional monetary policy has gone almost as far as it can in the US and Japan. The failure of the European Central Bank and the Bank of England decisively to respond in October was very damaging, but that is now history. Policy rates will fall further in December, but may make only a modest contribution to stabilising demand, given the further decline in bank balance sheets and rising levels of fear. It is therefore time for unorthodox policy, but one that is far better than Milton Friedman’s helicopter drops of money, because it is reversible.

Emphasis added by me.

This is the first article I’ve encountered calling for cooperation on a worldwide scale.

Why continue to throw bad money after good?

If demand is the problem, it can be created on a scale never before witnessed in the history of mankind.

This guy’s “unorthodox” solution is merely orthodoxy writ larger.

Why call for worldwide cooperation and coordination for just that paltry effort? It wouldn’t work anyway.

Chronicles Of Depression 2.0: #436: HYPERINFLATION!

November 24, 2008


Bloomberg: Fed Pledges Top $7.4 Trillion to Ease Frozen Credit (Update1)

Nov. 24 (Bloomberg) — The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

Emphasis added by me.

God Almighty!!!

It gets worse:

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms.

The Dow Jones Industrial Average through Friday is down 38 percent since the beginning of the year and 43 percent from its peak on Oct. 9, 2007. The S&P 500 fell 45 percent from the beginning of the year through Friday and 49 percent from its peak on Oct. 9, 2007. The Nikkei 225 Index has fallen 46 percent from the beginning of the year through Friday and 57 percent from its most recent peak of 18,261.98 on July 9, 2007. Goldman Sachs Group Inc. is down 78 percent, to $53.31, on Friday from its peak of $247.92 on Oct. 31, 2007, and 75 percent this year.

Emphasis added by me.

Twenty-three trillion! Poof! GONE!

Worse still:

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

Emphasis added by me.

That $24,000 is on top of the existing debt.

Even more worse:

The commitment of public money is appropriate to the peril, said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. and a former economist at the New York Fed. U.S. financial firms have taken writedowns and losses of $666.1 billion since the beginning of 2007, according to Bloomberg data.

Emphasis added by me.

Near three-quarters of a trillion! Poof! GONE!

And yes, even worse:

Bernanke’s Fed is responsible for $4.4 trillion of pledges, or 60 percent of the total commitment of $7.4 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

Emphasis added by me.

Thank you, Bernanke, for turning us into the next Zimbabwe!

OK, here’s the fatal shot to the head:

Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

Emphasis added by me.

There! It’s been said! The house of cards has collapsed. Economic orthodoxy is over.

What is not being said: This is going to destroy us. Under economic orthodoxy, Bernanke has just set the stage for a lethal hyperinflation crisis next year. That is the consequences of a Central Bank printing massive amounts of funds. There is no escaping that. Nation after nation has suffered this inevitable consequence. We are not immune from it.

And let me remind everyone again: $23 trillion is nothing. There’s a quadrillion total out there. That’s one thousand trillion dollars.

There is now only one way out.

Bank Collapse Watch: CitiGroup 2

November 23, 2008

Citigroup seeks ’emergency cash’

Executives of Citigroup, one of the biggest banks in the US, are in emergency talks with the US Treasury to gain much-needed funding, reports say.

The bank is also said to have contacted certain shareholders to assess their interest in increasing their stakes as as it faces an uncertain future.

Emphasis added by me.

Really, do you think anyone can take weekends off anymore? When the history of this is written, we’ll find out just how many 3AM calls were made.

Getting faster worse:

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Emphasis added by me.

Still think this is a healthy and going company?

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability.

It is widely expected that Citigroup will issue a statement on Monday before the US markets open.

A world without CitiGroup is going to be a startling thing to witness.

Go grab a bunch of cash for safety. At some point those ATMs are going to stop working.

Bank Collapse Watch: CitiGroup

November 22, 2008

Citigroup May Get Government Rescue, Investors Say (Update1)

Nov. 21 (Bloomberg) — Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ‘too big to fail,‘” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating agencies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients today. “In situations where the government has stepped in, the equity holders have not fared well.”

Emphasis added by me.

Astute readers will notice that with this post, I have “upgraded” CitiGroup from Chronicles of Depression 2.0 to actual Bank Collapse Watch.

On Friday (yesterday), a commentator on CNBC said “CitiGroup is a penny stock.” He said he never thought he’d say such a thing in his life. Hey, what did I warn everyone about earlier this year? It’s all coming to pass now.

Get the big picture. Read The Dimensions Of Our Doom.

Previous CitiGroup posts here (earliest to recent order):

Masters Of Greed Enslaved By Greed — January 12
It’s Sunset In America — January 14
What, You Thought It Was Over? — January 30
CitiGroup Is Sinking — March 4
Chronicles Of Depression 2.0: #016 — April 3
Chronicles Of Depression 2.0: #020 — April 8
Chronicles Of Depression 2.0: #024 — April 11
Chronicles Of Depression 2.0: #027 — April 13
Chronicles Of Depression 2.0: #039 — April 18
Chronicles Of Depression 2.0: #074 — April 30
Chronicles Of Depression 2.0: #080 — May 1
Chronicles Of Depression 2.0: #085 — May 6
No Wonder CitiGroup Is In Deep Shit — May 15
Finally! The CitiGroup Layoffs Begin! — June 23
Chronicles Of Depression 2.0: #141 — July 6
Chronicles Of Depression 2.0: #154 — July 14
Chronicles Of Depression 2.0: #159 — July 16
Chronicles Of Depression 2.0: #160 — July 18
Chronicles Of Depression 2.0: #161 — July 18
Chronicles Of Depression 2.0: #164 — July 20
Chronicles Of Depression 2.0: #170 — July 29
Chronicles Of Depression 2.0: #184 — August 4
Chronicles Of Depression 2.0: #213 — September 17
Chronicles Of Depression 2.0: #223: CitiGroup Blinks — September 23
Chronicles Of Depression 2.0: #255: Jackals — September 27
Chronicles Of Depression 2.0: #328: Endgame — October 12
Chronicles Of Depression 2.0: #342: CitiGroup — October 16
Chronicles Of Depression 2.0: #362: CitiGroup 2 — October 29
Chronicles Of Depression 2.0: #412: CitiGroup 3 — November 14
Chronicles Of Depression 2.0: #415: CitiGroup 4 — November 17
Chronicles Of Depression 2.0: #422: Cow Chips — November 19
Chronicles Of Depression 2.0: #424: $1T MOAR! — November 20

Bank Collapse Watch: Three More Go Down

November 22, 2008

Downey Seized, Sold to U.S. Bancorp as Mortgage Fallout Spreads

Nov. 22 (Bloomberg) — Seizure and sale of Downey Financial Corp. and two smaller lenders may cost the FDIC more than $2 billion as foreclosures rise and home prices extend declines in the worst housing slump since the Great Depression.

U.S. Bancorp acquired Downey and smaller PFF Bank & Trust, California thrifts crippled by bad mortgages, yesterday in a deal brokered by the Federal Deposit Insurance Corp. Community Bank of Loganville, Georgia, was also closed and its $611.4 million of deposits taken over by Bank of Essex in Tappahannock, Virginia.

Regulators this year have closed the most banks since 1993 as mortgage defaults and tightening credit froze markets. The collapse of IndyMac Bancorp Inc. was among the biggest in history, costing the FDIC $8.9 billion. The agency expects Downey’s demise to deplete its Deposit Insurance Fund by $1.4 billion, with PFF costing $700 million and Community $240 million.

Emphasis added by me.

Whoa! Two biggies just went down. Number 8 and 11 on that list I always reference.


These closures weren’t announced until very late Friday (last night), just after I’d closed this blog. These announcements happen on Friday … but now the time is becoming later and later.

Of particular interest:

Downey was fourth biggest seller of option-ARMs, ahead of IndyMac and behind Wachovia, Washington Mutual and Countrywide Financial Corp., now part of Bank of America Corp.

Emphasis added by me.

Do we have a list of the others in the Top Ten of option-ARM sales?

Get the big picture. Read The Dimensions Of Our Doom.

Chronicles Of Depression 2.0: #430: Ireland

November 21, 2008

Markets wary of Irish debt as fresh rescue looms
Ireland’s bank rescue has begun to unravel despite a blanket debt guarantee for the country’s top lenders, prompting concerns that Europe’s credit crisis may be entering a second and more menacing phase.

The Taoiseach, Brian Cowen, told the Irish parliament yesterday that he was exploring “all options” to shore up the banks after the collapse of their share prices over recent days.

While talk of a fresh bail-out has helped revive the battered stocks of Anglo Irish, Bank of Ireland and other lenders, it appears merely to have shifted the risk to the Irish state itself.

Michael Klawitter, a strategist at Dresdner Kleinwort, said the cost of insuring Irish sovereign debt through credit default swaps (CDS) has surged to 133 basis points. “The markets have begun to see a risk to the solvency of the Irish government. They are questioning whether it has the financial muscle to back up the guarantees,” he said.

This is a disturbing pattern across Europe as the global credit crisis drags on, with extreme cases in Iceland, Ukraine, Russia, Hungary and Latvia. There are fears that investors could start to shun sovereign debt in Western states where banks have outgrown the underlying economy.

Ireland is vulnerable because financial services make up 9.8pc of GDP, including its ‘Canary Dwarf’ enclave of hedge funds. The liabilities of its lenders are twice Irish GDP. Britain, Switzerland, Belgium, Austria and Luxembourg are in the same boat.

Emphasis added by me.

There are only about six weeks left to this blog.

For eleven months I have screamed about Depression 2.0 coming.

It’s now here.

For the next six weeks or so, you will now hear me screaming about the only possible solution: 777 all of it.

It’s gotten to All Sink or All Swim.

Everyone will be left holding a bag of nothing. Everyone can wind up with nothing after the collapse and ruination of everything or they can wind up with a bag of nothing with nations and societies and companies still intact and all eager to rev up and have another go at things.

We’ve forgiven debts of other countries.

It’s time for all of us to wipe every slate clean.

Chronicles Of Depression 2.0: #429: Pre-Splat

November 21, 2008

What’s The Next Big Thing For 2009?

How far the stock market will fall is anyone’s guess, the next support on the charts is roughly around today’s close. So we may expect an engineered Xmas rally by the Plunge Protection Team. But I’m on the lookout for the coming day when both the stock and bond markets head down together. That’s when we know that the Great Bond Collapse of 2009 will be underway. After that I suspect that the 2009 bond collapse will eventually transmogrify into a global fiat currency collapse, given that the only thing backing the world’s currencies is hot air issuing from the collective mouths of the world’s central bankers. From every indication they are going to need to blow a lot more smoke up bondholders skirts to give them a warm feeling about the pile of fiat paper.

Emphasis added by me.

Imagine being in a speeding car with failed brakes heading towards a wall.

Would you continue to steer straight ahead or pull on the wheel and change direction?

Everyone continues to steer straight ahead — to the inevitable smashup.

Change course!

Chronicles Of Depression 2.0: #428: Go Crazy!

November 21, 2008

Over at Nouriel Roubini’s site, there’s this headline that caught my eye:

Red underline by me.

Unfortunately, it’s behind a paywall.

But yes, let’s go crazy: 777 crazy.

The sooner, the better.