The stock market is saying in effect that Citigroup is insolvent. No one knows exactly what this means other than its assets are valued at less than its liabilities. This no doubt refers to mortgage securities, home mortgages owned, and related derivatives. But it probably also implies commercial real estate, high yielding loans, consumer credit cards, and maybe auto loans too.

Notwithstanding all this, Citigroup owns a number of businesses that generate billions of dollars of annual revenue, starting with consumer checking and savings accounts, and asset management. Citigroup can become a ward of the state like AIG, probably for five or more years because at the moment no one has the wherewithal to buy even the healthy parts of these companies.

I suspect this outcome is already reflected in the stock price and in market sentiment. I don't know how shocking it would be therefore if Citigroup were to be taken under the big umbrella of the Treasury. Or to put this another way, the ability of such developments to shock the market seems to be waning.

The ultimate shock, probably due to reach us in the middle of next year, is that the U.S. Government will eventually be seen to lack the resources to rescue anybody else without damaging severely its own credit rating and the position of the dollar.

http://www.cnbc.com/id/27835645

80% drop in equity markets?

Hendry says I look out and see dead people...

I did inhale.