From the Fed-Citicorp off-balance-sheet item Glenn Greenwald cites in his article today on  lax oversight at (and of) the Fed:

Treasury and the FDIC also have agreed to share with Citigroup losses on a designated pool of up to $306 billion in primarily mortgage-related assets currently held by Citigroup.

$306 billion is a lot of money.  Still.  But who assumes responsibility as time goes on for the losses on this amount is truly revealing.  And frightening. 

Follow along with me as I work the math.

For losses exceeding "current reserves and marks"(to be realistic, let's make those zero), Citi is responsible for up to $29 billion.

$29 billion taken from $306 billion leaves $277 billion.

Citi then bears 10% of "additional losses", while the Treasury picks up $5 billion, the FDIC picks up $10 billion.

Wait, the government's losses are $15 billion max, Citi's is 10% of the total - this is a damn word problem.

Not to worrry. $15 billion is 90 percent of what? $16.67 billion. So Citi would be out $1.67 billion.

I hate decimals, though. Let's make it $2 billion (so even more than they really are exposed).

$277 billion less $5 billion less $10 billion less $2 billion - that leaves $260 billion worth of - crap, what happens next? We eat the whole thing?

Nah: after all the money from the loss-sharing arrangement is exhausted, the Fed will provide Citi with yet more "financing up to the value of the assets remaining in the designated pool after the loss sharing arrangements with the Treasury and FDIC are exhausted."

So Citi can borrow another $260 billion or so(given that the likelihood of underlying asset "value" being marked to market is next-to-never). On what terms?

Any advances made would be "at a floating rate equal to the 3-month overnight index swap rate plus 300 basis points."

The comparable New York Funding Rate for three months in today's WSJ is 0.9525%. So let's say Citi would be borrowing at around 4% if it were to happen today.

I'm sure most of your mortgages are around that.

(But surely the possibility of us suffering huge losses is something we have to live with for only a limited period of time? Once Citi is back on their feet at the end of 2010, say, this whole nightmare scenario comes to an end?

Right?

Nope. The facility is good for 10 years on the residential mortgage-backed assets, 5 years on everything else.

So prepare yourself for one hundred twenty months of angst.)

Did I mention the advances are "provided to Citigroup on a non-recourse basis, except with respect to interest payments"?

Citi's gotta pay the interest. The principal - not so much.

I think that's the deal on my 30-year.

Oh but it's not that terrible. Citi continues to share 10% of the loss! Extra patriot points for helping a poor country out. (Damn country - always getting into trouble and making me bail it out...)

$260 billion less $26 billion - we're only out, potentially, $234 billion, plus the $15 billion Treasury and the FDIC ponied up, less whatever interest we can collect from a bank that, given how things are going, is unlikely to be able to pay their light bills at that point.

So $249 billion.

Doesn't this deal sounds kinda insanely sweet? I know it would to me if I were a reckless, desperate money-center bank in need of public charity.

Really sending you to the alms house on bread and water, aren't we, Citi? You're out $29 billion plus $2 billion plus $26 billion - let's just make it $57 billion.

$57 billion out of - where did we start? - $306 billion.

Citi's maximum exposure - around 19%. US of A's - 81%.

Yeah. Sounds like the private sector appetite for risk really took a hit on this one. (Citi theoretically knows a lot more about these assets than we do. Coincidence?)

But hold on - don't have a cyclone in your bloomers yet, America - Geithner and Bernanke are watching our back:

Any financing provided by the Reserve Bank would be collateralized by the assets in the designated pool.

"Pool" - kind of like the one in Grey Gardens. Just not so well-maintained.