Thursday, November 8, 2007

No More Bloody Shoes

Everyone is waiting for the next "shoe to drop" in the financial markets. No one knows when or what it will be but the market spends an inordinate amount of time thinking and speculating about it. Here is another scenario:

Citigroup, Inc. releases a press release at 2:00 AM on Sunday Morning on Thanksgiving Weekend. It is noteworthy for its simplicity and brevity. It reads:

"Citigroup, Inc., announced this morning that it will no longer provide credit support to the multiple Structured Investment Vehicles that have been carried off balance sheet. While Citigroup, Inc. previously supported these vehicles through various means in order to maintain market stability, the bank is under no legal obligation to do so, and has decided to use our capital for other purposes."

The silence is deafening - for a moment - as the market takes a couple of seconds to digest and understand the implications of this. At the close on Monday, the first money market fund "breaks the buck" and trades at less than a dollar a share. Panic sweeps the staid world of the money markets, accelerated when the great mass of individual investors finally realize that a dollar in a money market fund does not equal a dollar of cash.


libbyandellie said...

Thanksgiving weekend?

What am I missing?


Eric J. Fox said...

Thanksgiving weekend?

So it would draw as little attention as possible.

Cute kids you got there.