Trade

Sold short: C at $24.54. Why? Because is the story on VIE's is correct, then Citigroup is facing more writedowns. If they have more losses, they will need to raise more capital. However, the cost is going to be prohibitive because they agreed to reimburse their most recent investors for any lower price that they pay future investors. If they can't raise more money, they will be insolvent.

Also thinking about shorting AIG, possibly tomorrow. They announce earnings at the close. Amazingly, the analyst consensus is that they will earn $0.60 per share. The low estimate is for a loss of -$1.20. Here's what I'm thinking: I expect AIG's swap losses to be/get worse for several reasons. First, AIG is rated AA, not AAA. That means that they probably would've been tapped to insure riskier things than AAA rated paper. Who would go to AIG and ask them to rate AAA rated or insured paper? Also, they would've sold CDS to riskier firms that aren't required to hold AAA rated paper. Finally, they probably sold CDS later in the game, when the AAA monolines (MBIA, Ambac, etc.) started looking shaky.