Lose $10B? Open a new office.

Citi Loses Almost $10B, Slashes Dividend - washingtonpost.com: "The news sent Citigroup's shares skidding 7 percent, wiping away almost $10 billion in market value on top of the $125 billion the shares already have lost over the past year."

So let me get this straight: Citibank is in the midst of a downturn to the tune of nearly $10Billion just in the last Quarter. Right. Lets put this in perspective: if a person were to count $10Billion by hand figuring 1 bill counted each second it would require 347 years! (Amount derived from http://www.zodl.net/billion.htm) Let's just say that it's a lot.

Considering that I'm not really all that good with numbers and can only guess at what the hell is actually going on with the banks who lent money for mortgages - with stipulations in the mortgage contracts that specify while the interest rates were low the payments would remain low, but if the interest rates when up the payments would go up.

Okay, that sounds pretty simple on the surface of it. Still I'm left with questions: how do the interest rates go up? I mean who is in control of that seemingly arbitrary number? I've actually included an answer to that question below, but don't get all excited. Its not really all that satisfying.

Money, in truth, is only an agreed upon idea of exchange; of value.

My wife and I have a fixed rate loan with another company so it's not an issue for us, but I need to think of it this way, if my payment can remain the same throughout the term of the loan - that means that the bank is willing to accept that amount of interest being paid. That's a decision that we all agreed to, but lets face it when interest rates go up the bank is in no way losing money because I'm paying less than the guy who buys a house now at the new rates.

So how is it beneficial for a bank to foreclose on a homeowner when the interest rates become so high that the owner cannot make the payments? Wouldn't it make more sense for the bank to continue to accept ongoing payments from that customer.? Isn't an ongoing payment better than no payment? Why would a bank want to force a family out of their $100,000.00 home because they can only pay $800.00 per month instead of $2400.00? The bank is then left with a house it doesn't want so they're willing to sell the foreclosed home at a fraction of the $100,000.00 value. Sometimes no one wants the house because the entire neighborhood have been foreclosed upon and people don't want to live or invest in ghost towns. How does this benefit the bank or the homeowner? It only benefits the investor who has scored a major deal because of someone else's pain.

As I mentioned above I did some wandering on the net and found the following explanation on who sets the mortgage rates: "... huge banking conglomerates like Citigroup Inc. and Wells Fargo & Co. answer to a higher mortgage rate power -- namely, the secondary market. The secondary market is where Fannie Mae, Freddie Mac and other mortgage investors ply their trade. These huge agencies -- which were founded with government help decades ago to make the mortgage lending process more efficient -- purchase loans that lenders make, then either hold them in their portfolios or bundle them with other loans into mortgage-backed securities. Those securities get sold to mutual funds, Wall Street firms and other financial investors who trade them the same way they trade Treasury securities and other bonds.As a result of this business model, investors -- rather than bankers or mortgage brokers -- are in the driver's seat when it comes to setting mortgage rates." http://www.bankrate.com/brm/news/mtg/20020722a.asp

So again we're looking at investors being the driving force behind the interest rates and consequently the rate of foreclosure. Yet I cannot continue to believe that having a steady payment over a period of years amounting to $100,000.00 is not at least equal to or better than nothing at all or a fraction of the actual value.

Ultimately, it appears to me, that all of this is about interest being equal to how much can be squeezed out of the consumer at any given moment. I suppose in some circles (say the character played by Michael Douglas in the film Wall Street) that philosophy is all that there is. Whether we like it or not we do live in a society governed by investors. It's an all American thing. Super wealthy investors in China and Saudi Arabia are buying up quite a lot of all that is American. They want to play the game too. To the investor - the game is to be richer, isn't it?

So what does the largest bank in the US do when they have just posted the largest loss in their history? They open a brand new branch, polished and gleaming, high tech and marvelous in every way, just outside the Grand Central Station exit to Park Avenue. I don't suppose they had to get a loan to do that.

You can bet that on this day investors are exulting at their win (convoluted though it might be to people like me), what they have made, the money in their pockets, the luxury cars they drive, the lives they have manipulated, and the unknown families; losers, who did not play the game very well at all. They can go on home now to posh lives of forgetfulness and denial and visions of more ways to gather more wealth. Today they have all the money they've ever wanted. Tomorrow however... will be a new day with a new interest rate.