“When Lew was a COO at Citigroup, I was strategist for a credit derivatives hedge fund that did a great deal of business with Citigroup. We created collateralized debt obligations out of credit default swaps written on junk-quality debt, and through the magic of structuring, turned the junk debt into AAA-rated bonds. Citigroup not only underwrote these bonds, but bought virtually all of them through its so-called structured investment vehicles (SIV’s). These are off-balance-sheet devices sanctioned by the deaf-dumb-and-blind monkeys at the regulatory agencies that allowed banks to lever up AAA-rated paper at a ratio of 70 to 1. That is, Citibank bought $70 of these phony AAAs with $1 of actual shareholders’ capital. Of course, the supposedly AAA-rated paper rubber-stamped by Moody’s and Standard & Poor’s bore no more relation to a true AAA security than a Thai counterfeit Rolex bears to the real thing (in fact, the Thai Rolex holds up better under scrutiny — at least it will tell time). When the crisis hit, the price of these supposed AAA-rated bonds collapsed, leaving Citi with losses multiplied by the 70:1 leverage factor.Perhaps those feigning outrage at Jackie Chan's charge that the USA is the most corrupt nation on the planet should consider taking this sort of thing into account.
“That’s why Citigroup went bankrupt (or would have except for repeated federal bailouts). There was a daisy-chain between the hedge fund investment side run in part by Jack Lew, the structuring desk, and the structured investment vehicle. Citigroup took a fee for investing in hedge funds, took a fee for structuring the hedge funds’ investments, and also bought a great deal of the dodgiest product. We used to tell our counterparties at Citigroup that they were crazy to buy this garbage (in effect, we were short the phony AAA paper that Citigroup was buying with 70:1 leverage. And I told the whole world this was the case on CNBC.) One of the reasons I knew with certainty that the banking system would blow up in 2008 was that I knew in detail what Citigroup had bought on Jack Lew’s watch.