TROUBLE IN RIVER CITI….Atrios comments on the latest estimate of “Level 3” assets owned by Citigroup. That is, assets that no one really knows how to value:

I guess the point is that the inability to put reasonable estimates on the value of this stuff isn’t simply due to an inability to account for them accurately due to the fact that they don’t trade enough to have a genuine market price. Whoever loaded up on these piles of shit should have some knowledge of just what is contained in them….Unless, of course, no one has any clue what these pieces of paper represent. And that seems to be where we are.

Speaking (as usual) from a position of profound ignorance about this stuff, this still doesn’t make sense. I assume these Level 3 assets are primarily the equity tranches of the various CDOs and SIVs put together by Citi over the past few years — and, yes, these are close to impossible to value because so much of their value is based on computer-driven modeling of how all the underlying assets interact with each other.

But the whole point of CDOs and SIVs in the first place is that some portfolio manager collects a bunch of assets together into a single vehicle and then puts the entire vehicle on the market. So if push comes to shove, the CDO can always be unbundled and the underlying assets put back on the market individually. It might not be pretty, but it would give us a pretty firm idea of what they were really worth.

And that seems to be the problem: not that this stuff can’t be valued, but the almost dead certainty that, in fact, the underlying assets aren’t worth much at all. And if the CDOs and SIVs were unraveled, and marked to market, Citi would be close to bankrupt. Maybe a few other banks as well.

Or so I’d guess. Certainly one thing that makes me even more nervous about all this than I otherwise would be is that even people who are genuine experts don’t really seem to understand this much better than me. They’re all mystified too. How can that be?