not to give the citi insiders too much benefit of the doubt, but it's it a bit much to think they'd be trading on material non-public information?

Dean... Are we sure that these banks are actually undercapitalized? They've had to write down mortgage related assets, yes. But most of them have written those assets down to levels that they wouldn't sell at. Look at the ABS and CMBS markets -- very few sales are getting done. Hedge funds won't pay more but banks won't sell at these prices.

Isn't it possible that 2-3 years from now when the economy surges that these banks are going to be writing these assets up again? Looks like the people financing the banks (the offshore sovereigns) are going to get a great deal.

Looks like you've never worked for an investment bank. Every banker has to clear every trade with the bank. Further, some trades -- such as shorting the bank's stock -- are prohibited outright. Having been a Citi employee for years, I can confirm that Citi employees are not permitted to short Citi stock under any circumstances -- I don't think any bank lets its employees short its stock. Moreover, senior employees are barely able to trade the bank's stock at all -- only in very brief windows of a few days per year, directly after financial statements are released. Banks take insider trading very seriously.

Otherwise, your points are, as usual, well taken.

I would think that insider stock sell-offs and shorts would be easily detected. They can't be that stupid, can they? I mean, we're not talking Enron here... or, are we?

My time spent trading options, for Citi, ironically enough, convinced me that insider trading is endemic. It wouldn't surprise me in the least. The only thing preventing it wouldn't be the rules against insider trading; those are so hard to prove that it rarely comes up. As a general rule, though, executives are not allowed to short their own company.

Earlier today, CIT notes due April 09 were trading to yield almost 10%. Someone thinks CIT isn't solvent right now and has doubts that it can be kept on life support for the next 13 months.

This from the folks who used to thrive on credit card rates of 30% interest. Ooooh!!! I feel so sorry for the entire slimy lot of them.

Ben Bernanke why he feels the need for such secrecy. Did the country get in this mess because we had too much transparency?

LOL. Good one! The financial system does not exist without secrecy, period.

This from the folks who STILL to thrive on credit card rates of 30% interest.

FTFY.

I would think that trading on this insider information would be easy for someone on the inside that wants to trade on this information. A few calls on a new prepaid cellphone to some sleazoid offshore banker, say, Julius Baer....

I think the ABX markets are rational right now. They're pricing in something like 20% nominal home declines.

Even prime borrowers become risky when stuck in negative equity mortgages. I dont think these securities recover in 2yrs when the market is 'liquid' again.

If Citigroup goes under while the fed is holding all this paper as collateral, isn't that the same as the FHA or Freddie/Fannie buying the mortgages? I think(hope) the fed was only accepting AAA paper.
I understand helping them in a run situation, but clearly the ceo ran it into an iceburg and winners and losers need to be sorted.

destor23: Allright!!! I have some depressed assets that I am absolutely convinced will be worth tons of money in only one Friedman Unit.

You'll readily and unhesitantly lend me some money, yes?

The reality of course is that none of us knows the real situation at Citigroup or any other bank that the Fed may be keeping alive with its TAF.

But of course, that hasn't kept Dean from fingering Citigroup as a collapse waiting to happen -- even though, as far as I can see, there aren't any news reports pointing to Citi as a special recipient of the Fed's liquidity pumping.

But, hey, why let the facts (or absence of them) stand in the way of a little Internet rumor mongering, especially if it might help bring down a major financial institution that employs hundreds of thousands of people (most of whom make a hell of lot less than Chuck Prince--and probably less than Dean Baker).

If anyone is acting like a sleazy short seller right now, it's Dean.

Yea, Postal Savings Banks!

"Isn't it possible that 2-3 years from now when the economy surges that these banks are going to be writing these assets up again?"

In a word, no.

"Would Citigroup Be Bankrupt Without Money from the Fed?
I don't know the answer to that question, nor do I think anyone else does..."

Given that banking reserves less TAF is ZERO, it's a pretty safe bet. In fact, its a fairly safe bet that most of the reserve system would be insolvent without the TAF right now, right? It's not just Citi.

I think its fair to speculate on Citigroup's health first.
If you look at the stock prices of the very large banks over the past year, Citigroup's stock price has fallen the most.
More than Bank of America, Wachovia, Wells Fargo, JPMorgan Chase..

Wow, i'm jeopardizing Citigroup by posing a question on my blog!
If that's the case, I'm shorting it.

Look, Citi is obviously in trouble. They've taken huge write-downs and their stock has plummeted. Given the state of the economy and the housing market, I think it's a pretty safe bet that they will have many more write-downs to come.

If, under these circumstances, even asking the question about the bank's solvency jeopardizes its survival, then we need to open up the TAF really quick.

OK, so I still own some Citi right now. Hopefully, this will not be true by 10 AM on Monday morning.

I believe it is common knowledge that the Federal Reserve saved Citi's bacon back in the early 90s. I am now no longer confident that they can repeat this feat. And this, people, is very scary.

Here's an interesting graph:

http://research.stlouisfed.org/fred2/series/BORROW?cid=122

Borrowing from the Fed in the last two months was an order of magnitude greater than almost any time in history (the other blip is apparently the Continental Illinois failure in 1984). More can be expected, since reserve requirements have withered away almost to nothing.

Robert Rubin could answer a couple questions on Citi, but he'll be in an 'undisclosed location' until mid-November or so.
He's been working on some new deregulation with Sandy Weill & Chuck Prince. They're lobbying for a repeal of the repeal of Glass-Steagall, it will be called Citi-Bail.

If Peter Principle is going to put words in Mr. Dean's mouth he should at least buy him lunch first!

Well, my (tardy) prophecy above had already been fulfilled Friday morning when the Fed announced that they would make $100B available for lending this month, plus $100B for buying back Fannie and Freddy securities (which should fall under open-market operations, no?).

Again, that the Fed has to do this should not be a surprise since they have been reducing reserve requirements for a long time. Reserve requirements are supposed to be a part of Fed policy - they are a check on excessive and irresponsible lending.

The executive version of short selling (officially, if you're not talking about writing call options) is to sell their stock, either on the open market or not.

Check out this page in a few months.