Could Citi follow Indy?

The hue and cry from conservatives about the letter written by Sen. Chuck Schumer questioning the solvency of Indymac, blaming Schumer for the bank’s demise, is ridiculous. If the bank was solvent, it would have assets to cover its obligations. That’s why people put their money in banks instead of mattresses.

But Indymac isn’t the only bank teetering on the ragged edge of disaster.

At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank’s $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan.

Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.

In other words, Citi is holding, off its balance sheet, the type of risky, highly speculative assets that led to the current financial meltdown — valued at half the worth of the company’s official assets, and about 12 times more than the company’s market value.

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