We Smell Trouble...

In a previous post we wrote about the looming tidal wave of mind-numbing horror and destruction known as synthetic collateralised debt obligations (SCDO). In that post, we pointed our bony finger at JP Morgan and screeched, "it's them! THEM!"

We still stand by that statement, but this article from CNNMoney.com got us thinking. Citigroup has announced that it will back legislation allowing bankruptcy judges to unilaterally rewrite mortgage terms. This, in effect, means that judges can 'cram-down' the principle of the mortgage, or lower the interest rate on the loan... or both, presumably.

It makes sense, in a way: with house prices on a one-way trip to purgatory, banks' balance sheets will be obliterated as the value of their foreclosed properties approach zero. Citigroup, realising this, decided to cheerfully volunteer itself to be violated by bankruptcy judges, since it seems like the less painful option.

We wonder about that, though. There are trillions of SCDO's floating around in the aether, just waiting for the right company, or companies, to collapse. We're confident JP Morgan has a pretty big piece of the pie... but maybe Citigroup has its own trillion or so, waiting in the wings.

Honestly, dear Reader, we don't know. Perhaps Citigroup is simply making a last-ditch effort to bail itself out. We just have to wonder what the hell it's doing, as this move smells fishy.