Citibank didn’t have Enough
Citibank neither had enough, nor do they think that they gave us, the citizens enough of their crap.
In the Mexican peso crisis of 1994-1995 CitiBank should have gone kaput. Thanks to Clinton’s Treasury Secretary Rubin and Alan Greenspan, Mexico was bailed out. The bailout gave a respite to the Orange County, CA pension fund and CitiBank who then bet heavily (long) on Mexican peso. And then there were more bailouts during the 1997 Asian ‘contagion,’ 1998 Russian Ruble collapse and the LTCM implosion.
Emboldened by the repeal of Glass Steagal act in 1999, shadow banks like Bear Stearns and Lehman Brothers have started a race to the top via 40 to 1 leverage and derivatives on derivatives. Not to be outdone by the shadow banks, the real bank that Citi was, they had their own share of ‘derivative’ products, which Warren Buffet called ‘financial weapons of mass destruction.’
We all know how it worked out for them.
Now, it seems that Citi didn’t have enough of this toxic stuff that nearly destroyed the company. They are now coming up with a new exotic and mother of all derivatives poduct (via MarketWatch):
Citigroup Inc. (C), our taxpayer-funded national bank, is readying a new credit derivative, the CLX. Basically, the CLX is systemic risk insurance that will pay out in the event of a financial crisis. The basic premise is to allow investors to hedge against a spike in funding costs.
According to Risk Magazine “the CLX is constructed as a sum of the Sharpe ratio — deviations from the mean divided by volatility — of various market factors, such as equity volatilities, Treasury rates, swap spreads, corporate bond swaption-implied volatilities, and structured credit spreads. Citi will make the CLX tradable by using fixed historical values for the mean and volatility parameters, eliminating the need for costly recomputation from lengthy time series.”
If you understood the last paragraph, please take two bailouts, a bonus and call your Treasury Secretary in the morning. [full story]
Here is an ad that is being promoted by some activist in favor of tougher regulation against the big-banks.