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Originally Posted by host
The Dow 30 industrials index and the S&P 500 made new all time highs, each week for the past two weeks, and the Nasdaq 2000 and Nasdaq 100 made new, 5 year highs....and if the nation's largest bank by marker capitalizartion, Citi Group, was left unassisted, to sell it's "securities" to raise funds...at market price.....the price you or I, or our mutual or pension fund would receive for selling an identical "SIV" (securitized investment vehicle) or MBS.....to meet it's obligations....it appears that Citi Group, and possibly other major financial institutions, holding these "investments"....<h3>would be insolvent</h3>
Sooooooooooooooooooooo...WTF are the stock indexes doing at all time, or long term highs? If your mutual fund or pension fund practices "dollar cost averaging"...purchasing stock as you contribute new funds....when stock prices are low.....or high.......or in between.....if our government is helping to manipulate the appearance of these banks solvency...when they aren't or won't be, soon....isn't this orchestration going to burn your portfolio, as Citi Corp's actual conditions triggers a sudden and rapid stock market decline?
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Here is some info form WSJ:
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Citigroup and other banks are struggling with so-called structured investment vehicles, or SIVs, which are off-balance-sheet vehicles that issue short-term commercial paper and medium-term notes. The proceeds are invested in higher-yielding assets such as mortgage-backed securities. The banks earn a profit from the spread between the paper issued and what they invested in.
Citigroup was the leader in this market, with about $80 billion of the $400 billion outstanding. Bank of America Corp. and J.P. Morgan Chase & Co. don't have SIVs, but have agreed to take part in the bailout plan, helping to organize the vehicle that will pool SIV assets.
Banks typically agree to provide, in an emergency, funds equivalent to 10% to 50% of a SIV's assets. Banks are realizing that investors may have been too confident, believing banks were fully backing SIVs. That put the banks in the potentially awkward position of having to provide even more support to protect their reputations.
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http://online.wsj.com/article/SB1192...googlenews_wsj
It seem what Citi is doing with these SIV's is what banks generally do, they more or less borrow or use money at one rate and loan it at a higher rate. In order for this to work there has to be "fractional reserving", hence perhaps they keep 10% of the money and loan out 90%. All banks have a default risk and are leveraged. To the degree that Citi is leveraged to mortgage backed securities that go bad will determine thier solvency. It is possible Citi has taken on too much risk.
Here some infor from the Fed on reserving:
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The reserve ratio on net transactions accounts depends on the amount of net transactions accounts at the depository institution. The Garn-St Germain Act of 1982 exempted the first $2 million of reservable liabilities from reserve requirements. This "exemption amount" is adjusted each year according to a formula specified by the act. The amount of net transaction accounts subject to a reserve requirement ratio of 3 percent was set under the Monetary Control Act of 1980 at $25 million. This "low-reserve tranche" is also adjusted each year (see table of low-reserve tranche amounts and exemption amounts since 1982). Net transaction accounts in excess of the low-reserve tranche are currently reservable at 10 percent.
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http://www.federalreserve.gov/moneta...reservereq.htm
One thing I agree on and many others agree on is that the CEO at Citi is most likely over his head and should be removed. Again, this is a situation of the small investor needing to avoid investing in companies they don't understand. If you can't understand the SEC filings, quarterly and annual financial statments, they should not be making the investments. I remember trying to read a Tyco quarterly report once, I made the mistake of trying to print it, after a ream of paper, I decided to sell the stock. that was before the scandle with Kosloski, who is now in jail.
There is justice, even on Wall St.