Learning that we never learn: Citibank

March 27, 2008 7:37 am

“Education costs money, but then so does ignorance.” – Sir Claus Moser

Phew…Only $1.66 billion. It was only a short time ago that a billions dollar payment would be a big concern. Remember back to the 1998 collapse of Long-Term Capital management when an initial $1.8 billion hedge fund loss announcement lead to a global meltdown? I suppose that it was different as it was a decade ago and the dollar was worth a lot less back then. Then again….

The recent news of the Enron settlement by Citigroup (C) would normally cause a substantial stir and a marked concern by investors. But the truth is that this is a drop in the bucket compared to the real write-downs we are witnessing.

Citigroup settles with Enron creditors – International Herald Tribune

Citigroup said Wednesday that it would pay $1.66 billion to the Enron Bankruptcy Estate, which represents creditors of Enron, the energy trader that engineered one of the biggest U.S. corporate frauds. With a trial scheduled for next month, Citigroup was the last of 11 financial institutions to resolve claims going back to 2003. Citi’s shares fell $1.37 to close at $22.05.

Ironically, the Enron collapse was also due to derivatives, leverage and off-balance sheet arrangements. Sound familiar? I thought we had learned our lesson from that? The Enron, LTCM, and subprime are all the same animal, just in a different flavor. AND, touching the hot surface has not helped keep us out of the fire as we (investors) are lied to, over and over again..and apparently very stupid.

The most troubling news though is not that John Meriwether’s hedge fund is seeing record number of outflows related to a 28% loss in his Relative Value Opportunity fund has seen in 2008. Rather it is that after the amazing loss and market turmoil caused by his last fiasco, that his funds would ever see the inflows to begin with.

What do you think…have we learned our lesson?

Disclosure: No Positions in stocks mentioned.

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