Monday, November 5, 2007

Humpty Dumpty was a Goldman Sachs Guy

Citigroup's "board named Sir Win Bischoff ... as interim chief executive. Senior Advisor Robert Rubin [RR] will become chairman. Citigroup also said it will write off between $8 and $11 billion to reflect the declining value of subprime-mortgage-related securities since Sept. 30", WSJ, 5 November.

"In 1999,then Treasury Secretary [RR] was pictured alongside Alan Greenspan and Larry Summers on the cover of Time magazine with the headline: The Committee to Save the World", David Enrich in the WSJ, 5 November.

"When the market for mortgage securities entered a meltdown over the summer, financial firms holding billions of dollars of hard-to-trade assets used mathematical models that were heavily dependent on credit ratings. ... For lack of any market pricing, Citigroup used credit ratings as a key input in figuring out the value of the future payments they expected to receive on the securities, according to people familiar with the bank's valuation models. For example in valuing the payments on pieces of subprime-backed CDOs with the highest triple-A rating, the bank would look to how the market was valuing payments on corporate bonds with the same rating", Carrick Mollenkamp and David Reilly in the WSJ, 5 November.

Amazing. This brings two thoughts to mind: One, Humpty Dumpty (HD) of Lewis Carroll's 1842 Alice in Wonderland must have been a GS guy; two, Citigroup is in worse trouble than it wants to admit. We have the spectacle of "former" GS guy RR apparently asking "former" GS guy Hank Paulson to prevent the writedown Citigroup is about to record.

I expected RR to be named interim Citigroup chairman, because he has "street cred", whatever that is. I think it means he can pull strings behind the scenes and has a big Rolodex. "Faster than a speeding bullet. More powerful than a locomotive. Able to leap tall [piles of bad paper] in a single bound. Look! Up in the sky! It's a bird. It's a plane. It's Super[former GS guy]", with apologies to the "Superman" televison show intro of 1952 to 1957.

HD said to Alice, "When I use a word it means just what I choose it to mean--neither more nor less". Alice, "The question is, whether you can make words mean so many different things". HD, "The question is: which is to be master-- that's all". HD, "former GS guy" now says, "when I value a security it's worth exactly what I say it's worth".

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