Robert Rubin and Ben Bernanke: A Dialogue

How much trouble are we really in? Charles Zentay in Safe Haven:

Ben Bernanke: Hello, how may I help you?

Robert Rubin: Dr. Chairman, it's your old friend Bob over at Citi.

Bernanke: Oh Bob, what a pleasure. It's nice to hear from you again. What can I do for you?

Rubin: Well Ben, we've got some problems over here. Now I trust you will be discrete on this. We can't let this get out in the market. I think we're insolvent.

Bernanke: What?

Rubin: See we have about $65 billion in capital, but we have $55 billion in Super Senior CDOs, and no one will buy them from us.

Bernanke: No one?

Rubin: We can't sell them for $1. I'm now being told that if no one wants to buy pieces of paper from you, it turns out they are worthless. Believe me. I'm as shocked as you are.

Bernanke: But don't you have a lot of cash flow? That's what I've been hearing on CNBC.

Rubin: Well, in addition, we have $80 billion in SIV exposure, an additional $80 billion in conduit exposure, and a lot, lot more in derivative exposure that might not be worth what we said it was when we paid out our bonuses over the last couple years. I talked to some ex-traders, but they aren't inclined to give back the bonuses. You add it all up, and we don't have enough money to meet our liabilities.

[H/t: Alex Cooley]