The New York Times reports on the sell-off today: "The sell-off began after Citigroup, the world’s biggest bank, was hit with a downgraded rating from an influential analyst group, which recommended the bank cut its stock dividends to raise funds. Citigroup wrote down $5.9 billion in assets in the third quarter after losses stemming from mortgage-backed securities and bad bets on asset backed commercial paper. The bank is considered a bellwether of the financial sector, which has faced a battery of poor earnings reports and credit troubles."
Citibank rang the bell earlier. Here is an extract from my new unpublished book that I discussed yesterday:
Citibank had been intent on "selling" -- many used the more accurate, term "pushing" (see Darity and Horn 1988) -- as much credit as possible to Latin America, so much so that Citibank had been getting nearly 50 percent of its revenue from its loans to Latin America.
The bank made these loans without much thought about the ability of Latin America to repay them or without putting adequate reserves aside to cover potential defaults. As a result, the company became deeply enmeshed in the Latin American debt crisis. By 1991, some Citicorp debt had been reduced to junk bond status. Public figures, as diverse as Representative John Dingell and Ross Perot, described Citibank as insolvent (Zweig 1995, p. 867 and 872).
Matters became so dire that the president of the New York branch of the Federal Reserve Bank had to fly to Saudi Arabia to arrange for Prince Alwaleed Bin Talal Alsaud to invest another $1.2 billion in the bank in late 1990. The Federal Reserve also had to be sure to keep interest rates down long enough to salvage the bank (Woodward 2000, p. 73).
[This material comes after a section describing Citibank's leader, Walter Wriston, writing a book that Thomas Friedman "borrowed" in his The Lexus and the Olive Tree.]