Link to this page: http://www.socialistparty.org.uk/issue/509/3386
From The Socialist newspaper, 8 November 2007
Why Prince of mortgages resigned
CHARLES PRINCE, chairman and chief executive of the world's biggest bank, Citigroup, has resigned. His replacement is former US Treasury Secretary, Robert Rubin. This follows a drop in Citigroup's profits to $2.38 billion from $5.51 billion a year earlier, in the three months to the end of September.
Dave Carr
Citigroup has been a leading player in the sub-prime mortgage-backed securities market, buying billions of dollars worth of mortgages (including $55 billion of sub-prime debt), then selling them on to international investors.
Sub-prime loans are housing mortgages offered to people with poor credit records or unpredictable earnings. This debt was repackaged and sold around the world making huge profits. However, rising interest rates triggered record defaults, driving down the value of the debt.
Overall, over $1 trillion worth of sub-prime mortgage-backed securities are outstanding. The US Federal Reserve has estimated that the financial sector as a whole could lose at least $100 billion.
But while Prince can expect a handsome pay-off, up to two million US families are expected to lose their homes over the next two years.
Another recent high-profile casualty has been Stan O'Neal, chief executive of US bank Merrill Lynch. Pressure for him to go from big shareholders grew after the firm was forced to admit a $7.9 billion (£3.85 billion) exposure to bad debt. The write-off contributed to the firm posting a third-quarter net loss of $2.3 billion, its worst financial performance since 2001.
Meanwhile, UK Chancellor Alistair Darling defended the billions of pounds lent to Northern Rock, saying the bank still had assets of £100 billion. By the end of the year the Northern Rock will have borrowed £30 billion from the Bank of England.
Three-quarters of Northern Rock's funding came from the wholesale money market and when the global credit crunch took hold, its main source of financing dried up.
The Treasury has also indemnified a further £20 billion of retail deposits. This equals a total of £40 billion public-sector exposure to Northern Rock, the equivalent of around 3% of the entire UK economy!
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In The Socialist 8 November 2007:
Sick of the profit system? Come to Socialism 2007
Socialist Party workplace news
PCS backs further strike action
Build the left in the public-sector trade unions
International socialist news and analysis
Martial law imposed in Pakistan
Israel: Café waiters' strike victory
Free detained Nigerian students
Socialist Party news and analysis
'Competition' dominated by a few giants
Corporate crime: Sign of an out-of-control economy
Jean Charles de Menezes: Unanswered questions after court case
Why Prince of mortgages resigned
Socialist Party NHS campaign
Don't just 'celebrate' the NHS - fight back
Staff shortages cause stress and anger
Support strikers at Northern General Hospital
Health workers strike against sacking
Education feature
Education, Education, Education
New schools but not enough rooms
NUT elections: "What are we waiting for?"
Workplace news
Fight Royal Mail victimisation
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