Citi...Bear...Snake...Rat

Oh Citi...

My favorite Government Sponsored Entity,
Indeed you are the Queen of Double Indemnity

In the newest edition of Mortgage Banking Magazine, the ill fated tale of Citi's handling of the Bear Stears Hedge Fund implosion is told in detail.

While Eddie's post from this morning deals with the scapegoats of the mortgage crisis, mine deals with those who escaped. I can completely understand if you guys are tired of hearing that investment bankers suck and that Wall Street is the devil's den. After all, you guys (for the most part) are not the generation that caused this shit propelling tornado. You are just going to be the generation that pays for it.

Many days I wake up and consider dedicating this blog to the mortgage mess alone. Then again, I am worn out, as well. I want to think happy thoughts, I want to go back to how things were before...but this nagging conscience of mine, just will not allow it.

I never took a liar loan or sold a slice of Z-Tranche pie, but like many of you I defended the system. I stuck up for Wall Street when the populist idiots threw rocks at the throne. I reasoned that grab happy buyers were at fault; victims of their own stupidity. I pointed my finger at the government; Fannie and Freddie my scapegoats du jour. I spat on Bush, hocked loogeys at Paulson and projectile vomited at Obama. I haven't changed my mind about these people and organizations, but now realize that I was too lenient on the banks. In this particular case, it is Citi and their eternal avoidance of just desserts. In the vein of a career criminal who turns government witness, this house of cards, theft and who me? arrogance still stands on tax payer stilts and on the backs of its victims.

Here's an excerpt from the article featuring the analysis of Janet Tavakoli, President of Tavakoli Structured Finance:

The [FCIC’s Phil Angelides] should have asked the Citi executives “why the Bear Stearns hedge fund implosion didn’t give [Citigroup] cause for alarm” in the spring and early summer of 2007. “Instead, [Angelides] gave them a free pass and let them get away with saying nobody could have known there were problems in 2007 until the fall”
Bear Stearns was planning an initial public offering (IPO) for Everquest Financial Ltd., which was jointly managed and advised by Bear Stearns Asset Management Inc. and Stone Towers Debt Advisers LLC. The privately-held fund owned $743 million in CDO assets, including 90 percent of the equity interest in those CDOs, according to the S-1 filing of May 9, 2007. The equity tranche is generally the riskiest slice of the CDO. Everquest owned pieces of 19 CDOs, while its subsidiary, the Parapet CDO, which was a CDO of CDOs or CDO2, owned pieces of another 37 CDOs.
One of Everquest’s assets was half the equity tranches of a “toxic CDO” named Octonian I that Bear Stearns bought from Citigroup in March 2007. Bear had sold $13.2 million of the $24 million in equity tranches of Octonian I to Everquest, according to the S-1. Citigroup, stood to gain from the IPO because $150 million in cash from the proceeds of the IPO, would be used to pay down most of a $200 million credit line Citi had extended to Everquest. This would reduce Citi’s exposure to losses from the subprime CDOs assets in Everquest.
The Everquest S-1 offering was withdrawn June 25, 2007. By July 17, one of the two troubled Bear Stearns hedge funds that invested in subprime was worthless and shares in the other were worth 9 cents on the dollar.

In reading this story I can't help but to reminisce over Alfred Hitchcock's classic film noir yarn Double Indemnity . In this masterpiece of greed and graft, a seasoned insurance salesman meets the seductive wife of one of his clients and they have an affair. She proposes to kill her husband to receive the prize of an accident insurance policy and he schemes to receive twice the amount based on a double indemnity clause.

People say that life imitates art. I just wish we had killed one well insured husband, instead of an entire economy.