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Citi & Morgan Stanley Closer to Collapse Than We Ever Knew

Citigroup Building
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Citigroup Building

In the depths of the financial crisis, Citigroupand Morgan Stanley were teetering on the precipice of total disaster, according to official documents. The new information, recently released by the Financial Crisis Inquiry Commission, paints a dark picture of both banks during the fall of 2008, as reported by Susanne Craig and Ben Protess in The New York Times DealBook.

New York Federal Reserve officials described Morgan Stanley as a "deer in the headlights" in internal memos, addressed to then-chairman, Tim Geithner, among others. Morgan Stanley is also likened to Lehman brothers—just before its collapse.

But the scariest new details to emerge so far may concern Citigroup.

For example: Christopher Spoth of the FDIC wrote to his boss, Shelia Bair, on November 21, 2008: "In short, I will characterize the liquidity and confidence situation as negative and deteriorating such that viability may be threatened without outside support."

Citi's stock price had fallen 20 percent on the day that email was written—and was off 60 percent on the week.

What may be more disturbing, however, are recently released statistics that show private bank deposits fell $1 billion that day—with over a third of the fall off due to "Citi name concerns."

In other words, a bank run.

Furthermore, the news seemed to be driving a downward spiral with regard to Citi's counterparty relationships. For example, we learn that "UBS initially cut equity finance lines in half to Citi, from $1.8 billion to $900 million."

Shortly thereafter regulators intervened: And Citigroup limped out of 2008—bloodied but still viable.

All told, the salient point to take awake from this round of documents may be this: The Lehman parallels and financial brinksmanship demonstrate just how close our banking system came to falling off the face of a cliff.

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