Banks facing major bad debts

Banks facing major bad debts

By By Joe Baker, Senior Editor

There’s more bad news for the financial community. The National Review reported one of Enron’s largest creditors, Citigroup, Inc., is in hot water.

The Review and The New York Times said “senior credit officers of Citigroup misrepresented the full nature of a 1999 transaction with Enron in the records of the deal so that Enron could ignore accounting requirements and hide its true financial condition, according to internal bank documents and government investigators.”

It also has been reported that Enron marketed similar deals to many other companies and that Citigroup, along with J.P. Morgan Chase & Co., “transferred billions of dollars to Enron … in recent years in what amounted to loans that the Houston energy trader concealed as it struggled to survive.”

National Review writer Mark Levin wondered in print why Robert Rubin, who chairs Citigroup’s executive committee, has not been called to testify before Congress. Specifically, he wonders why Sen. Joe Lieberman, chairman of the Senate’s Governmental Affairs Committee, has not called Rubin to tell what he knows, nor has Sen. Carl Levin, who heads a subcommittee of Lieberman’s committee.

In addition to disclosures about Citigroup’s role in helping Enron to fudge its books, during the last days of Enron, Rubin played a direct part in trying to conceal Enron’s financial condition from credit rating agencies.

The Associated Press told of Rubin’s efforts to get the aid of Peter Fisher, undersecretary for finance in the Treasury Department, in intervening with credit rating agencies on Wall Street on Enron’s behalf.

John Diaz, managing director of Moody’s Investors Service, told Lieberman’s committee that Rubin had contacted him about getting a higher credit rating for Enron. Diaz said nothing came of the call.

All this is but the beginning of the next big thunderclap on Wall Street. It is estimated there is $500 billion in bad loans by American banks outstanding.

Little of this money will be regained. It will simply be written off. This comes while the banks are writing down record amounts of consumer debts, and some banks cannot even make loans to their best customers. Personal bankruptcies are at an all-time high. Now the banks must bear the brunt of all this new corporate bad debt.

What this will mean to the markets and the economy remains to be seen.

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