Citigroup coughs up restitution for auction rate securities debacle
Wall Street is a little hung over after yesterday's rapturous climb. The Dow Jones Industrial Average is down about 169 points at midday, which is still ahead of two days ago, so that's good. Oil is going for something like $118 a barrel. That would have sounded like insanity a year or 18 months ago, but today, it feels like a relief.
Forbes blames the financial malaise on two things: people not buying stuff, because they can no longer afford to; and the forecast wave of regular mortgage (as opposed to subprime mortgage) defaults coming down the pike.
Remember the auction rate securities disaster of late 2007 and early 2008? Well, Citigroup has at least stepped up to the plate and offered to buy back or help investors get rid of $19.5 billion in auction rate securities after selling investors on the claim that the securities were as liquid as cash, which they weren't. They'll also have to pay a fine of $100 million to U.S. regulators. Does this mean that individual investors will get their money back? Does it ever mean that? No. Don't be stupid.
According to Henry Blodget, housing prices are expected to fall further, and there is not enough cash out there to absorb banks' sales of assets and grease the system with new capital.
The effect will be like a flu pandemic in that everyone will either have succumbed to the sickness, or have worn himself or herself out completely trying to cope with everyone else's sickness.
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