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  • bubble_what_bubble bubble_what_bubble Jun 22, 2008 1:41 PM Flag

    Citi's (and LEH's) survival is at stake.


    There isn't a major bank in the US that isn't trying to hide the fact that the market value of their assets is less than their liabilities.

    Book value is an imaginary number that is important only to accountants and the IRS.

    That said, many banks (particularly smaller mortgage banks deemed expendable by the Fed), will fail.

    The question for LEH, C, BAC, JPM, WFC, etc., is will the banking system survive? If it does, then BAC, JPM and WFC will likely survive, and anyone owning their stocks (when foreclosures begin to decline substantially in 2011 or so) will prosper.

    Citibank, IMO, is at greater risk, and the ability of similar financial institutions to raise money, and the ability of Citibank to raise money, will be a significant factor in its survival.

    In other words, Citibank has a significant conflict of interest in upgrading any financial stock.

    It was only a half-dozen months ago that we were told by many that the downgrading of MBI and ABK from its triple A rating would result in a catastrophic unwinding of credit default swaps and other derivatives. Already, MBI has been downgraded twice.

    We've been lied to for more than two years by the President, the Fed Chair Bernanke, NAR, NAHB, the Treasury Secretary Paulsen, and just about every other market participant with a stake in the real estate industry and the survival of our financial system.

    Have we reached the point where we should believe Citibank?

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