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TheStreet.com TV Recap: Off-Balance-Sheet Risks

TheStreet.com Staff

Any time there are off-balance-sheet obligations that aren't easily accessible when looking at a company's financials, like Citigroup's (C) seven troubled structured investment vehicles, it can be an Enron-esque situation, Jim Cramer said on TheStreet.com TV's Wall Street Confidential Web video Friday.

This is what Enron did with the Raptor portfolio, "which was really just a lot of obligations that you didn't realize," he explained. The seven SIVs were always Citigroup's obligations, and Cramer said he doesn't understand why they were able to be kept off-balance sheet in the first place. "It seems like the accounting profession just routinely lets us down," he said.

Richard Bove, a financial strategist at Punk Ziegel & Co., says Citigroup is not going to have to cut its dividend, but Cramer doesn't know how that will be possible. Cramer said Citigroup, which he owns for his charitable trust, Action Alerts PLUS, is his "biggest disappointment this year."

Cramer said he feels very strongly that Citigroup CEO Vikram Pandit can undo everything that was brought in by former CEO Chuck Prince, "but he would have to first undo the ridiculous hedge fund acquisition that brought Pandit in."

The triple-A ratings Citi's SIVs have "are a meaningless concept" because the ratings agencies didn't really focus on what they put triple-A ratings on, he said, and the defaults on triple-A paper are running very high. "We see that from Countrywide (CFC), although it's not self-evident," Cramer said.

"What happens is triple-A paper is reduced to a very low level piece of paper, although the ratings' agencies don't seem to understand this, when you attach a home-equity line of credit to it," he explained. If he could see exactly how much second lien mortgages the SIVs have against them, Cramer said he would be able to tell people how bad it was.

But the fact that he doesn't know this information is why calls Citigroup a black hole.

"I'm very jaundiced about everything I hear about the mortgage market because it all comes down to one thing: If housing prices go up, we're fine; if housing prices go down, it doesn't matter what the government does, it doesn't matter what the Fed does, short of cutting interest rates," Cramer said. "We have to make it so people want to buy a home again, and there isn't anything that's being done to make that happen."