CitiGroup borrow 7.3B in emergency funds

www.ft.com...

Sign of the times. Will they be the big one that fails and kicks off the panic?

[edit on 20-3-2008 by FreeThinker2000]

The Bank of England offered £5 Billion in funds to banks in jeopary from this crunch and was five-times oversubscribed than anticipated as the financial institutions are no longer willing to lend to one another

Bank injects £5Bn into markets

The Bank of England has pumped another £5 billion into money markets as it met the bosses of Britain's biggest banks.

The Bank doubled the weekly funding available to banks and lenders to £10.93 billion in the latest of a series of moves to avert a new devastating twist in the credit crunch.

The money auction, which followed a £5 billion cash injection on Monday, was nearly three times over-subscribed, suggesting banks were increasingly struggling to secure funding in wholesale markets.

And reports indicated that high street lenders would press the Bank's Governor, Mervyn King, for more funding in the scheduled meeting.

The Bank's "exceptional fine-tuning" operation on Monday - prompted by the crisis at US investment bank Bear Stearns - was also oversubscribed, almost five-fold.

The Bank said that it would keep re-offering the overnight money "for the remainder of the maintenance period".

Meanwhile, the Bank had already last week pledged a further £10 billion in extra cash to ease a surge in rates at which banks are prepared to lend to each other for three months.

The Bank said earlier this week that its efforts came in direct response to tightening conditions in money markets.

Rumours have been mounting over the funding position of major banks, with Halifax Bank of Scotland's shares hammered on Wednesday after becoming the victim of false market rumours, which sparked denials from bosses and the Bank of England.

It also emerged that Bath Building Society and Earl Shilton Building Society have withdrawn all of their home loans, except their standard variable rates, with Bath saying it had simply run out of money to lend.

[edit on 20-3-2008 by citizen smith]

Even though the CIT Group -[NYSE: CIT] is not CitiGroup [NYSE: C]

this is still very instructive/revealing news...
(unless one wants to remain a glassy-eyed trader that bought into the
+400 point rally the other day)


as I recall, the Fed lowered rates by .75% and announced that
they were financing the JP Morgan&Chase assimilation of BearStearns,
and both GoldmanSacs & Lehman announced they
(like BearStearns on Friday) were solvent and awash in fund money...

but as far as I read, Goldman & Lehman both went to the Feds'
discount window with their hands held out for $2Billion Each !!!
now just why would another two financial houses - that had so much liquidity on hand- go to the Fed Discount Window ??

-> somethings rotten and it ain't fish-wrapped-in-newspaper...

Citibank has probably been at the forefront creating this mess.

The real reason behind USA's massive financial slump is what are known as CDOs or Collateralised Debt Obligations and their cousins CMOs, or Collateralised Mortgage Obligations.

en.wikipedia.org...

Banks are limited by international convention to restrict lending to no more than 14 times their cash holdings, but by getting debts off their books and getting in funds for the sale of those debts (CDO/CMO) banks refinance themselves and expand their cash holdings.

Banks use CDO and CMO products to take debt off their books.

Banks sell these bundles of debt as CDO or CMO in return for the total value of the debt. In reality it is like banks selling their debts to a credit collection agency.

Securities firms who buy these debts return funds to the bank against which the banks can lend again... but hey wait a minute.

The money the banks were paid by securities firms was not money which the securities firms had collected against those debts. It was money for a future unrealised earning.

So now the banks have enlarged their credit worthiness against unrealised debts removed off their books, so that banks can effectively re-lend money they never had.

This way banks in USA have effectively managed to lend up to 200 times their true worth.

What has happened is this created very easy credit and lending agencies fell over themselves to lend money to people whom they knew could not repay.

Those CDOs and CMOs began to fall over in what has become known as the sub prime market collapse.

If America wants to rebuild itself it first has to fix the CDO market and prevent the writing of unbacked credit.

I don't think that keeping interest rates down and stimulating new credit actually solve the mess. It just encourages more profligate spending and further phoney credit.

If interest rates rise it will attract investment back from precious metals and commodities trading, thus lowering the price of oil and food.

Citigroup at the poorhouse. NOT GOOD!!!