Citibank downgraded by analysts. “They don’t have enough capital, pure and simple,” says one. “They will have to address that, ASAP.” The subprime meltdown rolls on.[BusinessWeek]

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  1. speedwell (propagandist and secular snarkist) says:

    As someone who knows many people screwed by Citi’s oh-so-abusive credit card practices, all I can say is, “…the schadenfreude, it smells so sweet…”.

  2. CumaeanSibyl says:

    This may be a dumb question, but here goes: given that so many of these problems stem from a) overvalued real estate, ranging from minor to major inflation, and b) extension of unreasonable amounts of credit, does enough capital actually exist to fix all the problems? I mean, have the lenders created so much fake money, in the form of credit and false home equity, that there really isn’t enough “real” money to cover it?

  3. RogerDucky says:

    @CumaeanSibyl:
    Short answer: Yes. There’s not enough real money.
    Long answer:
    Lenders lend money out to people with houses. When they get enough mortgages, they package them all together and sell it to someone else. This means the lenders would get the money back immediately, at a smaller profit than usual, but the returns are much quicker.

    The investment people, then, have taken on the risks that the lenders would’ve traditionally taken. This means that if the mortgages defaults, the lenders are okay, but the investment people are screwed. (Though, lenders like Countrywide is *still* screwed, mainly because they had a ton of these junk mortages that they hadn’t foisted off to the investors yet…)

    That’s one of the reasons for why Countrywide hasn’t wanted to renegotiate terms with borrowers — if they did, they’d be forced to buy back the loans according to the terms of the contracts between the investors and the lenders.

  4. redclear55 says:

    if they announce a rollback on the dividend, then I would be concerned. as of now, the analysts are downgrading citi because they do not know if all the credit issues have surfaced. keep in mind that the analysts on the street look at a very short time horizon, so think 3-12 months (or shorter most likely).