Ten billion is starting to seem like very little to write down. That's because we are become insensitive to the economic rot that is being uncovered, in large part because of the actions of the Fed and Treasury to hide the problems, papering over the deep gouge in the foundation of the financial system, diverting us with smooth talk and facile arguments.
The next shoe is about to drop. It will come out of the credit card and Alt-A mortgage debt, and the severe cutbacks in consumer spending. A reasonable look at the math shows that consumers hit the wall in the US in the past two years, and have been 'running on fumes.' Their real wage growth has been strangled by the financial engineering of the multinational corporations, who never seem to learn that a successful parasite does not kill its host.
Tim Geithner, Ben Bernanke's graduate assistant at the NY Fed, is speaking this afternoon about reforming the financial system. Its almost too much to bear to listen to the financial engineers asking for more power, even as schemes of their own construction are collapsing all around them. Tim has spent most of his adult life in large institutions such as academia, the Treasury and now the Fed.
Timmy doesn't realize that in the real world you normally don't get MORE power when you fuck things up, at least not if you are in a competitive and thriving organization, and/or if you are under adult superivision. But nice try promoting Paulson's plan to a friendly audience. Its DOA.
The pain which is to be delivered to all holders of US dollars as a price for this naive exercise in academic hubris will be of epic proportions.
Protect yourself.
Citi, Merrill, UBS Face Monoline Losses, Whitney Says
By Jeff Kearns and Bradley Keoun
June 9 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.
MBIA and Ambac, the world's largest bond insurers, had their AAA ratings cut two levels by Standard & Poor's June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers' ability to write new policies, putting further pressure on earnings, she wrote today in a note to investors.
``The limited earnings potential of monolines poses a risk to the value of the insurance and hedges on the subprime-related securities provided to the banks and brokers,'' Whitney wrote. ``The collateral damage could be in excess of an additional $10 billion.''
Whitney, one of the first bank analysts last year to gauge the depth of the U.S. credit crisis, said in January that losses tied to the bond insurers for all banks might top $40 billion. She didn't update her estimate. Citigroup, Merrill and UBS have taken more than $10 billion of writedowns related to the insurers, she wrote.
Citigroup, the biggest U.S. bank, and Merrill, the world's biggest brokerage, have ``underperform'' stock ratings from Whitney. Both companies are based in New York. She doesn't cover Zurich-based UBS, the European bank hardest hit by the U.S. subprime contagion.
UBS had $6.3 billion of ``exposure'' to bond insurers at the end of March, Whitney said. Citigroup had $4.8 billion and Merrill had about $3 billion, she wrote.
Citigroup rose 12 cents to $20.18 at 11:31 a.m. in New York Stock Exchange composite trading, Merrill Lynch fell 28 cents, or 0.7 percent, to $38.74, and UBS slid 80 centimes to 23.82 francs in Zurich trading.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.
