by Pam Martens and Russ Martens, Wall Street On Parade:
Having closely observed how Citigroup collapsed under the weight of its own corruption and risk-taking hubris in 2008 and spread its contagion across Wall Street, a headline we never dreamed we would see in our lifetime is shown above from Risk Magazine’s web site. The article under the heart-stopping headline is dated January 27, 2016 and informs readers that Citigroup is now viewed by clients as one of the top-three market makers in single name Credit Default Swaps in both North America and Europe.
Credit Default Swaps are the instruments that blew up the giant insurance company, AIG, in 2008, requiring the U.S. government to bail out the company to the tune of $185 billion. The bailout money went in the front door of AIG and was then funneled out the backdoor to the big Wall Street banks that had used AIG as their counterparty to guarantee their bets on Credit Default Swaps. The AIG bailout was effectively a backdoor bailout of the biggest banks on Wall Street.
Credit Default Swaps also played a role in Citigroup’s implosion in 2008, which necessitated the following government bailout: $45 billion in equity infusions; over $300 billion in asset guarantees; and more than $2 trillion in cumulative, below-market-rate loans from the Federal Reserve. Citigroup, then and now, holds insured savings deposits while at the same time engaging in high risk trading at both its investment bank and commercial bank.
Sheila Bair was the head of the Federal Deposit Insurance Corporation (FDIC) during the 2008 crash. The FDIC is the Federal agency that insures the deposits of U.S. commercial banks and savings associations. Bair published an authoritative book on the crisis, Bull by the Horns. This is an excerpt of what Bair had to say about Citigroup’s management of risk and its Credit Default Swaps:
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