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View Full Version : Citigroup dismantles panel that oversees the disposal of toxic assets



pghin08
05-30-2012, 09:39 AM
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/05/29/bloomberg_articlesM4HV8D0YHQ0X01-M4SIE.DTL

Just more proof that banks don't care about investor money, or a decent system of checks and balances within their own company. Basically what Citigroup is saying by doing this is, "Trust us, we'll get rid of these crappy assets. We don't need to regulate it, let's just leave it go and everything will be sunshine and kittens." Big banks in the US care only about whether or not they make money, no matter the risks in doing so. I'll never blame a company for wanting to turn a profit, that's just capitalism. I will blame a company, however, for doing it by any means necessary, at the risk of those who they service and the systemic risk involved.

tutall
05-30-2012, 09:52 AM
I have to somewhat disagree with you on this one... Boards are rarely more than giving a nice job to a buddy for resume or fund raising purposes. In a lot of cases it was set up more as a government told me I had to instead of a solid business decision. I would be interested to find out how often this board meets and if anything business related actually was discussed. I would guess the answer is no. Also I have no problem with any bank doing anything they feel is best as long as there is no bailout when things go sour. If there was no backing a loto f this risk would probably be eliminated

AUTaxMan
05-30-2012, 10:00 AM
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/05/29/bloomberg_articlesM4HV8D0YHQ0X01-M4SIE.DTL

Just more proof that banks don't care about investor money, or a decent system of checks and balances within their own company. Basically what Citigroup is saying by doing this is, "Trust us, we'll get rid of these crappy assets. We don't need to regulate it, let's just leave it go and everything will be sunshine and kittens." Big banks in the US care only about whether or not they make money, no matter the risks in doing so. I'll never blame a company for wanting to turn a profit, that's just capitalism. I will blame a company, however, for doing it by any means necessary, at the risk of those who they service and the systemic risk involved.

The article says that the federal regulators probably approved the change. They aren't going to stop managing the assets. They are merely changing the way they are managed. Maybe they didn't feel like the committee was getting the job done.

pghin08
05-30-2012, 10:10 AM
My thought is that if you're the only big bank to have your capital plan rejected and told it's no good, then it's probably not a great idea to dismantle the committee that's built to oversee the riskiest part of your business.

I also thought this was a somewhat cryptic statement:

"Dismantling the committee could make it easier for Pandit to get more aggressive in divesting what’s left in Citi Holdings, according to Peabody of Portales Partners. This could include selling some of the assets in a “less than economic fashion,” he said."

I'm just really not sure what that means.

duane1969
05-30-2012, 10:17 AM
The article says that the federal regulators probably approved the change. They aren't going to stop managing the assets. They are merely changing the way they are managed. Maybe they didn't feel like the committee was getting the job done.

Fed approval doesn't carry a lot of weight with me. All it takes to get Fed approval of something is a campaign donation, a free vacation, an invite to a party or a promise of kickbacks.

tpeichel
05-30-2012, 11:47 AM
Here is some of the $200 billion in crap assets.

Pandit’s ability to sell assets also will slow from the past three years, the bank said in February. Citi Holdings contains about $39 billion of home-equity loans, and there’s no market for such loans after they sour, according to the bank. Nor is he the only CEO looking to unload assets; banks in France (http://topics.bloomberg.com/france/), the U.K., Ireland, Germany (http://topics.bloomberg.com/germany/) and Spain have announced plans to shrink by about 775 billion euros ($972 billion).

Home Equity loans are worthless once the regular mortgage is under water, but I'm sure they are carrying these as positive assets on their balance sheets. Remember three years ago when Congress determined that the banks didn't have to mark to market because housing was only temporarily down and didn't reflect the true value of the assets? They were right! The market was too high and now the assets are worth much less. Every one of the big banks would be insolvent if they had to mark to market tomorrow.

AUTaxMan
05-30-2012, 01:04 PM
Here is some of the $200 billion in crap assets.

Panditís ability to sell assets also will slow from the past three years, the bank said in February. Citi Holdings contains about $39 billion of home-equity loans, and thereís no market for such loans after they sour, according to the bank. Nor is he the only CEO looking to unload assets; banks in France (http://topics.bloomberg.com/france/), the U.K., Ireland, Germany (http://topics.bloomberg.com/germany/) and Spain have announced plans to shrink by about 775 billion euros ($972 billion).

Home Equity loans are worthless once the regular mortgage is under water, but I'm sure they are carrying these as positive assets on their balance sheets. Remember three years ago when Congress determined that the banks didn't have to mark to market because housing was only temporarily down and didn't reflect the true value of the assets? They were right! The market was too high and now the assets are worth much less. Every one of the big banks would be insolvent if they had to mark to market tomorrow.

One of the real crimes here is the abolishment of the mark to market rules.

pghin08
05-30-2012, 01:22 PM
One of the real crimes here is the abolishment of the mark to market rules.

Explain, please.

tpeichel
05-30-2012, 02:29 PM
Mark to market is a process where financial institutions update the value of their assets on a daily basis to the true market value. Removing this requirement allowed financial institutions to place whatever value they wanted on an asset.

This is important because the FDIC is required to take Prompt Corrective Action (PCA) when the liabilities of a financial institution approach becoming greater than the assets, since the bank will not be able to pay back all of their depositors and creditors and the balance must be covered by FDIC insurance. So banks inflate their assets to avoid PCA.

It's easy to see this in action as over the last four years as banks have failed, the FDIC has liquidated the banks assets, and lo and behold, the actual value always seems to be between 10-30% less than the bank claimed.

pghin08
05-30-2012, 02:39 PM
Mark to market is a process where financial institutions update the value of their assets on a daily basis to the true market value. Removing this requirement allowed financial institutions to place whatever value they wanted on an asset.

This is important because the FDIC is required to take Prompt Corrective Action (PCA) when the liabilities of a financial institution approach becoming greater than the assets, since the bank will not be able to pay back all of their depositors and creditors and the balance must be covered by FDIC insurance. So banks inflate their assets to avoid PCA.

It's easy to see this in action as over the last four years as banks have failed, the FDIC has liquidated the banks assets, and lo and behold, the actual value always seems to be between 10-30% less than the bank claimed.

Sorry, I should have elaborated. I meant to ask why he thought this whole thing started with the abolition of mark to market rules, not for an explanation of what it was. Thanks to Enron some years ago, I learned all about mark-to-market accounting :nono:

Odd anecdote: Former Enron CEO Jeff Skilling was born in the same hospital as my mother, exactly one week later.

tpeichel
05-30-2012, 02:50 PM
Sorry, I should have elaborated. I meant to ask why he thought this whole thing started with the abolition of mark to market rules, not for an explanation of what it was. Thanks to Enron some years ago, I learned all about mark-to-market accounting :nono:

Odd anecdote: Former Enron CEO Jeff Skilling was born in the same hospital as my mother, exactly one week later.

Got it. Eliminating mark to market was just one of the many ways that the banksters have modified the rules so they can continue to get the upside of high risk strategies while laying the consequences of those failed strategies at the feet of the American Taxpayer.

pghin08
05-30-2012, 03:09 PM
Got it. Eliminating mark to market was just one of the many ways that the banksters have modified the rules so they can continue to get the upside of high risk strategies while laying the consequences of those failed strategies at the feet of the American Taxpayer.

Exactly, if I knew I was going to get bailed out, why not take on otherwise unpalatable risks to make big profits?