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Bankruptcy of the System: Citigroup and Merrill Lynch Report

Lyndon LaRouche

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January 15, 2007 (LPAC)--Citigroup reported the largest loss ever admitted by a U.S. bank today, a $10 billion loss for the fourth quarter, but that loss, as big as it is, is actually a cover story designed to hide far more serious damage. In the fourth quarter, the bank took $18 billion in losses on mortgage-related securities and added $4 billion to its reserves for losses on loans and consumer credit, losses which reflect the overall collapse of the global financial system. To help plug the hole in its balance sheet from these losses, the bank revealed $12.5 billion in new capital from the investment arm of the Government of Singapore, the Kuwaiti Investment Authority and others, on top of the $7.5 billion it obtained from the Abu Dhabi Investment Authority last November; in all, the bank has raised about $26 billion since the crisis began.

Merrill Lynch, which reports its fourth-quarter results later this week, announced that it had arranged a $6.6 billion capital injection from Korean Investment Corp., the Kuwaiti Investment Authority and others, on top of the $6.2 billion it arranged in December.

What these injections represent is a global effort to try to contain the effects of the blowout of the international financial system last year, in which trillions of dollars of nominal financial values vaporized, never to return. The losses have already occurred, and what is playing out now is merely the accounting for those losses on the balance sheets of the players. The banks are desperately trying to stretch out the reporting of these losses to buy themselves time, because to tell the truth would be to admit that they are hopelessly insolvent--what they are hiding is much worse than what they are admitting! As Lyndon LaRouche observed, "there is no bottom to this crisis." The system itself has died, and is taking the banking system with it.