http://www.marketwatch.com/news/story/citi-shares-record-slump-credit-default/story.aspx?guid={CBD75AB7-DE8D-4B01-BA17-C34DA4901487}&dist=TNMostReadCiti shares in record slump, CDS spreads widen
Bank takes on $17 billion of SIV assets, shuts another hedge fund
By Alistair Barr, MarketWatch
Last update: 4:41 p.m. EST Nov. 19, 2008
SAN FRANCISCO (MarketWatch) – Citigroup Inc. shares slumped a record 23% Wednesday and credit-default swap spreads on its debt widened after the bank took on more than $17 billion in assets from structured investment vehicles and shut another hedge fund.
Citi shares slumped 23% to close at $6.40. The previous biggest one-day drop was 21.7% during the market collapse on Oct 19, 1987.
CDS spreads on Citi were trading at more than 360 basis points during afternoon action, up from a 240 basis points yesterday, according to Phoenix Partners Group.
CDS are a common type of derivative contract that pay out in the event of default. When CDS spreads widen it means investors are willing to pay more for protection against defaults. A spread of 360 basis points means an investor buying $10 million worth of protection must pay $360,000 a year.
Citi said it will purchase the final $17.4 billion of assets still in structured investment vehicles, or SIVs, that the bank advised.
SIVs sell short-term debt and use they money to invest in longer-term, higher-yielding assets. During the credit boom earlier this decade, these vehicles became a popular way for some banks to grow assets without adding extra stress on their balance sheets. But when the credit crunch hit, SIVs couldn’t refinance their short-term debt. That forced banks including Citi and HSBC
to take the assets onto their own balance sheets.
In December, Citi said it would take $49 billion of assets from SIVs it advised onto its balance sheet to resolve concerns about how the vehicles were going to repay their debts.
The SIVs in question have been selling assets since then, and now have $17.4 billion left, Citi said Wednesday. Taking on this final chunk of assets will mean the SIVs have enough money to repay senior debt obligations that are maturing, the bank said.
Citi estimated that it needs to provide $300 million in extra funding for the transaction to close.
Citigroup CDS led an increase in counterparty credit risk in the derivatives market Wednesday, according to Credit Derivatives Research.
The CDR Counterparty Risk Index, which tracks credit-default swaps on leading banks and brokerage firms, rose 12.3 points to 263.9 during midday action.
CDS spreads on Morgan Stanley , Bank of America , J.P. Morgan Chase and Wachovia were all wider by at least 15 basis points, CDR said.
“Citigroup showed the greatest deterioration on news of hedge fund closures and SIV takeovers,” David Klein, manager of CDR’s credit indexes, said in an e-mail.
Citi is shutting down a corporate credit hedge fund called Corporate Special Opportunities after it slumped more than 50% in October.
“As with many other credit-based investment products, investment returns have been hurt by one of the most volatile periods for fixed income in history,” a Citigroup spokesman said in a statement Wednesday.
In February, Citi suspended investor redemptions from the fund, which once had more than $4 billion in assets. See full story. The value of the fund’s assets has now dwindled to less than $60 million, while its debt is about $880 million. That may leave investors with recoveries of no more than 10 cents on the dollar, according to the Financial Times.
Citi lent the hedge fund money and bought assets with a notional value of $1 billion that it put in the fund, the FT reported.
Losses for Citi could total hundreds of millions of dollars, the newspaper said.
Hi Xflies
I’m a retired renewable energy systems designer, though not grid sized ones. What you and everyone else here needs to realise is that Business as Usual will NEVER run on RE. However, it is possible to make hay whilst the sun shines. So if the wind blows and the sun shines, it’s off to work we go. If it don’t… have the day off. Welcome to the new green sustainable world [dis]order… It’s How I operate now.
BTW, thin film PVs do NOT have to have rare earth resources. I run thin film Silicon PVs here, and they are great, and cheap, and have low embodied energy. All this new hi-tech PV stuff may never see the light of day (pun intended) and is a total waste of time. We have viable technology that works NOW, so let,s stop mucking around.
Now, how do we fund it? CANCEL THE DEBTS…
I don’t know how many times I have to say it. I see no other solution to an out of control debt problem. Does anyone?
Xflies,
At the grassroots level the changes I see that are needed are: living sustainably, small diversified sustainable farms, biodiesel projects, complementary currencies, renewable energy, retrofitting existing houses for energy efficiency… All of these things can be achieved at the grassroots level but they do take time, research, and experience. I hope that people that are successful in the money world will put their focus in this direction since their skills are needed. Making connections between people already doing these things is also part of the solution.
This has been discussed further in a subscriber forum:
https://peakprosperity.com/forum/canada-eh/8599
For what Chris would do at the macro level I believe that his strategy would be to protect the US dollar at all costs (which would be to let deflation play itself out, get to a bottom and avoid the whole hyperinflation scenario). I searched and searched the site but for some reason I just couldn’t find his post on this topic.
I fully agree with such a course of action although it would involve so much wealth destruction that it is beyond reckoning. However this would be better than the hyperinflation to come since the pedal is firmly down to print money. Deflation (decline in the money supply of currency and credit) is occuring because of structural problems in the economy and the bad loans are being written off which means that money is destroyed. However the Fed is printing money by taking bad assets from US Banks in exchange for cash - this does fight deflation since, by magic (printing money), bad loans disappear onto the Fed’s balance sheet and the US Bank gets cash. This is currency money to replace the bad credit money (remembering that both are identical - I’m just using the different terms to identify the original source of the funds). Thus the deflation (bad loans) is fought off by replacement with new cash.
Meanwhile the US Banks are also receiving equity from the US Treasury - which increases Federal debt (and if third parties aren’t buying the debt is the Fed buying the debt and issuing cash? - if so it further increases currency money - and in a roundabout way deflation is fought off by replacement with new cash since the equity allows for other assets to be written down).
So why isn’t this working? It simply isn’t enough. Mortgages would still need to be restructured - are all of the associated losses already recognized (including off balance sheet - and who holds these - nonUS banks?) How about the negative feedback loop in the system from the depression (which is where I believe we are in the early stages) where job losses lead to a decline in purchasing and more auto / credit card / student loan defaults? Some money went into consumer’s hands who can make payments but which shifts the losses to the Federal Govt - if the Fed is printing money to do this this would help fight off deflation.
End result? Print too much money and hyperinflation ensues. Succeed in just fighting off deflation - then hyperinflation will come but not imminently - the debt would just continue to skyrocket and a lot of the losses have shifted to the USGovt. Future for the US dollar? Not good to say the least. When? At any time - or years.
What to do? See my post at the top re: grassroots actions. Chris would add spreading the word to as many people as possible so that they can prepare, make informed choices, and guide politicians. I agree with these steps and intend to help him in these efforts.
I hope you’ll help Chris by joining the Martenson Volunteer Brigade.
All the best,
James
As to cancelling debt, My wife and I have been responsible and saved and have a mortgage free house and had money in the bank. An aquaintence has made the most of easy credit and so is now mortgage to the hilt with shitloads of "toys" he brought on credit, traveled overseas etc. Now you want to cancel his debt, which also means you have to cancel MY savings ( if I still had them I have removed them from the banking system…)
NO WAY. Bankrupt him and give me his toys.
In another thread ( it had grown rather large ) replied to you with the
below but you had not answered, so since you are back on the subject
here it is again.
Since I am a bit of a PV sceptic I had not dug deep, just remembered an
article pointing out that that there was not enough Indium to make
enough solar panels as was being proposed by someone, Beautifully
vague am I !
Nothing on Unisolar’s site about what they use as dopants or
conductive films ( Indium Tin Oxide one of the common ones I presumed )
Frustrating in these days of instant answers!
On payback, how much did you get your panels for ?. Quick search on
the net yielded a cheapest price of NDZ 485, and assuming 6 hrs per day
at peak power, no other costs considered gave a 17 year payback.
then had a quick look at this site ( first up on google ) http://www.solarbuzz.com/statsCosts.htm
Again as a PV sceptic, how do you get a 2 year payback ?
In Canterbury we get 2100 hrs per year of sunshine, How does that compare with you ? ( tried to find it but no luck…)
Thanks for the bit on your passive solar house, but as you say allot
is site specific, and I Already know how to do it, just working around
the compromises/advantages caused by our site while keeping the wife
happy with the style 
As for hyper efficiency, do you use at chest type fridge ? ( one
where the door lifts up ) Saw a blog where a guy had tested out using
an old chest freezer as a fridge, and though details are a bit vague
now, I recalled that the difference in energy consumed was big. One of
the big savings being no flood of cold air out of the door each time
you open it.
Started cursory look at LED’s for lighting. Latest efficiency is
not to bad, but boy the lifespan. We have had all compact fluorescents
for ages now, but lately sort of suspecting they don’t last as long as
claimed, so have taken to writing start date in the base when we put a
new one in. now we wait…
Cheers Hamish
Hi gyrogearloose (bit off topic but never mind)
I’m in Nelson with 1kw purchased about 4 years ago for NZD6 per watt. We did it from our sustainable beliefs rather than any sense of economy but we previously used around 13kwh per day and we now have that down to around 4 as a result of giving so much attention to our use. No power bill is more than $50 per month and some as low as $20. Use wood for heating, wetback and solar for hot water. Use laptops for computing to save power. We could get a bit more economy if we had more reliable peak point chargers and turned our panels to follow the sun.
Don
This "exorbitant privilege" is one reason explaining why USD did not collapse yet as it should. IMO US military power is another reason.
War in Irak was also (mainly ?) conducted to insure USD remains the currency of most International trade and reserves. Remember, Saddam did ditch dollar and decided trade Irak’s oil in Euro. This "unacceptable" dollar weakening was prompty restored as soon as Irak’s oil came back on the market.
Guess what with Iran, another "axis of evil" ???
For these reasons, the dollar is ARTIFICIALLY strong and I believe it will take years before it goes to its intrisic real position, a MUCH WEAKER currency.
[quote=Damnthematrix]Now, how do we fund it? CANCEL THE DEBTS…
I don’t know how many times I have to say it. I see no other solution to an out of control debt problem. Does anyone?
[/quote]
Well to cancel the debts, one cancel both debtors and CREDITORS. This would mean cancel all Treasury notes and bonds. Could this append? Indeed this has already appended at least once in History. After the bolchevic revolution in 1917, the bolchevic gov’ refused to pay for any bond issued by Czar’s gov’. For years, they lost almost all their value. Nevertheless, these were still valid liabilities. They even made a come back recently as Yeltsin made an agreement with France.
An UK Times’ article dated back in 1950:
http://www.time.com/time/magazine/article/0,9171,812101,00.html
A NY Times’ article dated 2000:
http://query.nytimes.com/gst/fullpage.html?res=9B04E4DC113BF93AA25752C1A9669C8B63
So one could cancel the debts, but cannot cancel the US Treasury bonds & bills. Who is holding these bonds? Many are in the hands of chinese, arabic, sovereign wealth funds… What do you think would happend if US Gov’ decides to stop paying for its Treasury bonds? These are essentially IOU, but are these "I Owe You" or "I OWN You" ? We know the chinese are willing to aquire technologies for their own use. Once the US economy will be in great depression # 2, it’ll be US game over… Then either US gov’ agree chinese and others to take control of "non-strategic" companies, or it will start yet another war.
Good for you for trying to get people to refocus on a positive direction and effort. It’s kind of hard to tear your gaze away from the train wreck in slow motion that is the US economy at the moment. Y’know? Keep proding and eventually some will be able to shake off the shock and respond. 
The thread you mantion went over 70 posts, and the ‘next page’ URL just wouldn’t work for me and I gave up… so we meet again!
I don’t consider money payback, because frankly I don’t CARE how long my PVs take to pay for themselves. What REALLY matters is how long they pay back the ENERGY required to make them. Energy is the one and true currency. Once we are in energy descent mode, you won’t care how much your power costs so long as you can get some!
In a paper titled PV FAQ’s: What is the energy Payback for PVs you can read:
Thin-film PV modules use very little semiconductor material. The major energy costs for manufacturing are the substrate on which the thin films are deposited, the film-deposition process, and facility operation. Because thin-film PV technologies all have similar energy requirements, we’ll use amorphous silicon as our representative technology.
Alsema estimated that it takes 120 kWh/m2 to make frameless, amorphous-silicon PV modules. He added another 120 kWh/m2 for a frame and support structure for a rooftop-mounted, grid-connected system. Assuming 6% conversion efficiency (standard conditions) and 1,700 kWh/m2 per year of available sunlight energy, Alsema calculated a payback of about 3 years for current thin-film PV systems with frames. Kato and Palz calculated shorter paybacks for amorphous silicon, each ranging from 1 to 2 years.
http://www.nrel.gov/docs/fy04osti/35489.pdf
We have 20 panels. 20x240 kWhrs = 4800 kWhrs. We have now generated 5020 kWhrs (just read the meter!) in two years four months. Looks to me like their figures are SPOT ON!
We have a debt free house too. I don’t get my knickers in a knot over canceling debt. I’m more worried about my children’s inability to be able to raise cash to buy themselves an affordable house in the future.
Re:
As for hyper efficiency, do you use at chest type fridge ? ( one
where the door lifts up ) Saw a blog where a guy had tested out using
an old chest freezer as a fridge, and though details are a bit vague
now, I recalled that the difference in energy consumed was big. One of
the big savings being no flood of cold air out of the door each time
you open it.
Funny you should ask, we are waiting for my wife’s tax return to do exactly that. http://mountbest.net/chest_fridge.html
You’re right about the latest crop of Chinese CFLs… they are crap!
fujisan
What makes you think bonds will be worth ANYTHING in the future? I don’t think you guys understand what a collapse is…
Hey Matrix, great to see your insights here… I thought that Gallium was a key component to these new thin-film panels but I guess I was wrong.
Quesiton for you… how do you propose that we just "Cancel the debts"? After coming out with a detailed explanation of how you will do it, consider the implications step by step, that would really help.
Thanks!
Sorry man, I gotta disagree with you here… but this is what exactly I wanted to see, good debate on solutions so we come up with something that can really work. I don’t think the US needs to protect their currency… it’s doing very well on its own. In fact, it is somewhat of a problem since the US currency is almost ‘too big to fail’ and with a global economy, the world would be better served if there was more than 1 ‘goto’ currency. In a global economy, it would be safer to have several strong nations rather than everyone hording the US greenback. Also, I think that we do need some inflation and that hyperinflation is not a foregone assumption. With the problems we face, I doubt very highly that hyperinflation will come so quickly that we won’t be able to do things to slow it down… the next generation’s propensity to save will be the biggest factor to helping slow down hyperinflation, in my opinion.
Damnthematrix,
I’m belgian, you may call me Joe the belgian. I’m not expert by any means, but I believe the whole US economy won’t collapse all at a sudden. It’ll take years. Surely the dollar is much overvalued. In a normal economy, the dollar would already have been devaluted, but it’s still the world currency reserve (about 60% of all WW reserves).
At one time, I don’t know when, the US ecomony will become so depressed, with so many bankrupts, the US Gov’ will ask help from other countries: mainly China, and possibly others (arabic ?). The Chinese will then be in a position to impose their conditions. They might trade their T-bonds for some companies, even strategic ones, just to aquire their technologies. They could well trade the T-bonds for half their face value or even quater of it.
I’m no expert by any means, so I’m not sure the following make sense: The US Gov’ may then destroy the T-bonds it just got back, reducing its debt. Indeed just the reverse of creating money.
Will there be yet another war at some time ? Could the Chinese and Russian become allied ? (russian nuclear missiles - cold war # 2) Who knows ?
Had assumed thread size was an issue, it took me a while to find to repost here!
Mountbest bookmarked… 
Looks like there might be a few snippets in there.
CF test over then… Told my wife about LED’s and their life expectancy and worked out that most likely we would not have to change a "bulb", Got a laugh from her.
If you are worried about your kids inability to borrow… don’t advocate wiping debts. If savers get scared they will lose their savings by debt being wiped, why would they save. They would take their money out of the banks ( I have !!! ) oops isn’t that how bank runs start 
then argh, no bank to go to to borrow money to buy that house.
PV payback. Read the site. It smells to me of selective inclusions/exclusions.
Read http://www.jeffvail.net/2006/11/energy-payback-from-photovoltaics.html
Strangely, total cost seems to do a fairly good job of accounting for all the embedded energy in an item.
A few years ago a friend was commenting was commenting on how much it was going to cost to get power to his house and I told him to go solar/wind. Payback was instant as the off grid ( over-sized compared to what you have ) still cost less than getting grid connection. Even system maintenance and capital replacement allowances are less than the power bill the would have had. Ahead in every direction.
Still a PV sceptic when it comes to replacing grid power if you are right by the grid.
Saw an article that claimed the Hummer was greener than a prius 
but here is article does a good job of covering that topic.
http://www.thecarconnection.com/article/1010861_prius-versus-hummer-exploding-the-myth.
Explains fairly well the how many bits are left out of "payback" calculations and how "Fuzzy" the answer can become.
So I contend that a good rule of thumb of payback should be simply the cost ( excluding govt subsidies ).
Companies don’t usually "conviently" leave out the cost of certain aspects of making the item.
Cheers Hamish
[quote=fujisan]
Damnthematrix,
I’m belgian, you may call me Joe the belgian. [/quote]
REALLY! I was born in Anderlecht…
[quote=fujisan]
I’m not expert by any means, but I believe the whole US economy won’t collapse all at a sudden. It’ll take years. Surely the dollar is much overvalued. In a normal economy, the dollar would already have been devaluted, but it’s still the world currency reserve (about 60% of all WW reserves).[/quote]
How do you arrive at five years?
[quote=fujisan]
At one time, I don’t know when, the US ecomony will become so depressed, with so many bankrupts, the US Gov’ will ask help from other countries: mainly China, and possibly others (arabic ?). The Chinese will then be in a position to impose their conditions. They might trade their T-bonds for some companies, even strategic ones, just to aquire their technologies. They could well trade the T-bonds for half their face value or even quater of it. [/quote]
You’ve left one major factor out… Peak Energy. Without growing energy, growth is finished, without growth we have an entirely new ball game…
The US$ and all fiat currencies are doomed. It is just but a matter of time before they all fail. Go back through Chris’ Crash Course where he speaks of exponential functions. The world’s fiat currencies rely on perpetual growth to survive (since money = debt) … otherwise how do you pay the interest? No tree can grow to the moon. The US$ is doing well for the time being but this is just an intermediate term bounce in a long term bear market. The bailouts and stimulus packages offered to date and yet to be proposed and implemented cannot and will not work. Either these measures will be inadequate and deflation will reign or the amount of new money needed to stop the deflation will overwhelm the system and result in hyper-inflation. In the end all malinvestments (unproductive assets) of the past 95 years (since the creation of the Fed in 1913) must be liquidated. The market will not be denied. There are only 2 ways to liquidate these malinvestments. Either through an inflationary depression or through a deflationary depression.
You are right about one thing though. We all need to spend less and save more. The problem is that interest rates in a world of central banks are not set by the market but rather by the CBs. If governments cannot know the price to set for a pair of shoes in order to balance supply and demand how can they possibly know how to price the most important price of all … the price of money? They are motivated to set the interest rate too low in order to stimulate growth. However this has the unintended consequence of discouraging savings while encouraging spending. Why save when the after tax rate of interest is lower than the rate of inflation? The CBs are the ones that have gotten us into this mess. The only solution is to get rid of the CBs and let the market find a clearing interest rate where supply of credit (savings) equals demand for credit (debt). I don’t know where this market determined rate would end up but it most certainly would be higher than it is today. This would encourage people to save for the things they want rather than buying on credit. The increased savings generated would be used to finance productive assets rather than consumption and so productivity would improve. Bottom line is that the ONLY solution to the problem at hand is to develop an honest system of sound money. This is what was mandated by the US constitution.
The other solution offered several times by Matrix to cancel all debts cannot work. Why not? Since under our fiat system Money = Dedt so if you eliminate all debt you also eliminate all money.
| This is from Peter Schiff. Scary! The Humpty Dumpty Economy |  |
Before the current economic crisis became apparent to all, the most popular fable used to describe America’s uncanny economic resiliency was the story of Goldilocks. It was argued that our economy was skipping down a sunny path of moderate growth, low inflation and rising asset prices. However, a much better parable for our economy over the last decade would have been the story of Humpty Dumpty: a bloated, fragile shell perched on the top of a dangerously high stone wall. This week, all the government’s horses and all of its men scrambled to put Humpty Dumpty back together again. Here is a look at some of this week’s highlights:
The Mother of all Moral Hazards
No doubt prodded by the administration, Fannie Mae and Freddie Mac announced a new attempt to stop the fall in home prices and foreclosures through a loan modification program that would cap mortgage payments so that a homeowner’s total housing expenses would not exceed 38% of household income for home owners who are 90 days delinquent.
In a classic case of unintended consequences, the plan will encourage a massive new round of delinquencies and household income reduction as homeowners will jump through hoops to qualify for the program and maximize their benefit. Those who could conceivably economize to meet their existing obligations will now have a strong reason to forego such sacrifices. Those who are not 90 days past due will intentionally become so. In many cases, dual income families may decide to eliminate one job altogether as reduced mortgage payments combined with lower child care and other work related expenses will likely exceed the after-tax value of the lost paycheck.
Unfortunately, the last thing our economy needs is falling household incomes and even more bad debt. But that is precisely what this plan will give us.
<blockquote>Note: 4284.5 billion = $4.2845 trillion. Or a stack of thousand dollar bills 299 miles high. If you were on the space shuttle you’d still have 100 miles of thousand dollar bills towering above your head.</blockquote>
But the US federal debt is now at $10.65 Trillion. The dollar is going to the moon!
Its now on its past the orbit of the moon if you stack $1 bills instead of $1000 bills.
No, not with PVs. They are labor and science intensive, made by people in white coats in 99.99% dust free environments etc etc… THAT is where the expense comes from. Our PVs don’t have glass, and that alone must represent ~20% of the emergy, but not the cost… The main reason thin film is cheaper is that Si ingots/crystals are not needed, and it cuts out all thehigh tech manufacturing.
[quote=gyrogearloose]A few years ago a friend was commenting on how much it was going to cost to get power to his house and I told him to go solar/wind. Payback was instant as the off grid ( over-sized compared to what you have ) still cost less than getting grid connection. Even system maintenance and capital replacement allowances are less than the power bill the would have had. Ahead in every direction.
Still a PV sceptic when it comes to replacing grid power if you are right by the grid.
[/quote]
That’s all very well, but what will we do when the grid goes down? We have back up power from batteries in the event of a blackout… so there are other advantages!
I haven’t got time right now to search for a link, but that article was soundly rebutted…
[quote=gyrogearloose]
Explains fairly well the how many bits are left out of "payback" calculations and how "Fuzzy" the answer can become.
So I contend that a good rule of thumb of payback should be simply the cost ( excluding govt subsidies ).
Companies don’t usually "conveniently" leave out the cost of certain aspects of making the item.[/quote]
Hamish, this the classic error people who do not understand resource depletion make… We have squandered all types of resources because ‘the market’ made them really cheap, like gas at 5c a gallon in the early days of motoring in the US. The result was that you guys drove around in 3 ton yank tanks (as we call them here!) that couldn’t even do 10 MPG. In Europe, at the same time, we were paying a heap more, and everyone drove around in 40 MPG cars… of course Europe did not have its own oil. IF the US motorist had had to pay a couple of bucks a gallon instead of 5c, then you would’ve all been driving around in small cars too, and instead of peaking in 1970, your oil resources might still be viable to this day…
What I’m getting at here is that electricity is also way too cheap. We are currently being offered 44c/kWhr for solar power we feed into the grid, and people are actually objecting because it might increase their bills by $1.50 a month… I mean to say, they MUST BE KIDDING… everyone should be paying 44c, period. Then we wouldn’t have climate change issues, etc etc… but it’s all too late now, we’ve hit limits to growth, and that is that.