Jackson Jambalaya

Still wondering how this financial meltdown occurred? Read this article by Bloomberg, probably the best one written by a major media outlet so far. The off-balance sheet assets and liabilities are what drives this crisis as balance sheets are not trusted anymore by financial institutions.

Bloomberg:
"The bankers were warned that a Financial Accounting Standards Board plan would force trillions of dollars back onto balance sheets, requiring cash reserves to soar. Their business of pooling and reselling assets had dropped 47 percent in the first six months of the year, and the industry couldn't afford another setback. (Never mind this accounting trick is what caused the meltdown in the first place.-KF)....
Efforts by lobbyists have delayed FASB decisions and kept key parts of the American financial system beyond the reach of regulators. Their victories included ensuring that over-the- counter derivatives stayed unregulated and persuading the Securities and Exchange Commission to let investment banks' broker-dealer units reduce capital requirements. That allowed them to increase borrowing and magnify profits. Bank watchdogs also didn't move to tighten mortgage-industry standards until after the collapse of the subprime market.
Today, a road snakes from the foreclosed homes of California and Ohio to the capital cities of Europe, where politicians and bankers have struggled to contain a widening credit crisis by pumping hundreds of billions of euros into the financial system. The road was paved with decisions like ones by FASB that allowed banks to keep shifting assets into blind spots outside the view of shareholders and industry overseers. (Remember KF telling you it was about the transparency, not the liquidity or interest rates?)

Think it was all Bush's fault because the SEC changed the leveraging limits in 2004 for investment banks (limit of 12:1 was removed completely)?
"That same year (1998) Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt opposed an attempt by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. In 2000, Congress passed a law keeping them unregulated...." That started the ticking of the time bomb.
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aYJZOB_gZi0I


By the way, it should be asked if Citi is insolvent:
"Citigroup Inc. reported that it had $1.18 trillion in off- balance-sheet holdings as of June 30, including $828.3 billion in qualified special purpose entities, or QSPEs, a type of trust that is supposed to be beyond a lender's control."

What do you think will happen if a large portion of Citi's off-balance sheet asses are garbage?

Note:
Leverage: the ratio of borrowed funds to each dollar of equity capital held.